A mortgage calculator is a great pre-move tool to help you figure out how much house you can afford. You can play with variables like mortgage length and interest rate to compare how much your monthly loan payment can change.
But mortgage calculators, also known as house payment calculators, are limited. They can estimate what your monthly payment will be, but there are other housing costs they don’t include that could impact your monthly budget. As long as you’re aware of their limitations, they are a useful tool to help you determine your price range and calculate your loan payment before you start house shopping.
When to use a mortgage calculator
Buying a house will probably be the most important investment you’ll make. Use a house payment calculator as a research tool before house hunting. It will help you set your price range and determine how much house you can afford based on your monthly income.
Some mortgage calculators will even tell you how much income you need to earn to qualify for a home loan.
These figures will help you decide if you can afford your target home price. Knowing how much of your monthly household budget you can realistically spend on your dream house is a smart and responsible start toward your financial goals.
Understanding mortgage calculators
A mortgage calculator makes complicated amortization calculations in an instant. They calculate the monthly principal (the amount you borrowed and you’re paying back) and interest payments (the cost of borrowing money) over the life of the mortgage.
But to use one correctly, you will need to accurately fill out fields in the house payment calculator with the following information:
- The home’s purchase price
- A down payment amount you can afford
- Interest rate
- The loan term (how long the mortgage loan is for)
Once you enter this information, the mortgage calculator will tell you the amount of your monthly payment, which is a total of principal and interest costs.
But you need to remember that mortgage calculator amounts are only as accurate as the inputs you provide. Do your research ahead of time to determine the current interest rates and be honest about how much of a down payment you can afford.
Most mortgage calculators don’t take into account other monthly fees
Although mortgage calculators are a useful tool to help you break down amortization and decide on how much house you can afford, most only calculate interest and principal and don’t account for other expenses that can seriously impact your budget.
Some costs not covered by a mortgage calculator that you should budget for include:
- Homeowner’s insurance
- Property taxes
- Private Mortgage Insurance (PMI), which is required if you pay less than a 20% downpayment
- HOA or community fees for common area expenses like swimming pool maintenance, security, and landscaping
- Maintenance fees to keep your home in good shape
- Utilities including gas, water, electric, phone, internet, and more
Use your mortgage calculator results as a base price and do a bit of research to estimate the other monthly fees. This will give you a better idea of how much of your monthly income you will have to dedicate to that dream home.