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Mortgage Calculator: How to Plan Your Home Purchase
April 10, 2023
•
8 min read
•
Financial
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Understanding Mortgage Basics
A mortgage is a loan specifically for purchasing property, where the property itself serves as collateral. When you use our mortgage calculator, you're estimating your monthly payments based on three key factors:
- Loan Amount: The total amount you're borrowing (purchase price minus down payment)
- Interest Rate: The annual cost of borrowing expressed as a percentage
- Loan Term: The length of time to repay the loan (typically 15 or 30 years)
How Mortgage Payments Work
Your monthly mortgage payment typically includes four components (PITI):
| Component | Description |
|---|---|
| Principal | Payment toward the loan balance |
| Interest | Cost of borrowing the money |
| Taxes | Property taxes (often held in escrow) |
| Insurance | Homeowner's insurance (and possibly PMI) |
Using Our Mortgage Calculator Effectively
To get the most accurate estimate from our calculator:
- Enter realistic numbers: Use current market rates and your actual budget
- Consider all costs: Remember to factor in property taxes, insurance, and maintenance
- Play with scenarios: Try different down payments and loan terms
- Check affordability: Your housing costs shouldn't exceed 28% of gross income
Understanding Amortization
Mortgage payments follow an amortization schedule where:
- Early payments are mostly interest
- Over time, more goes toward principal
- Making extra payments can significantly reduce total interest
Our calculator shows this breakdown to help you understand the long-term costs.
Types of Mortgages
Different mortgage types will affect your calculations:
| Type | Description | Best For |
|---|---|---|
| Fixed-Rate | Interest rate stays same | Long-term homeowners |
| Adjustable-Rate (ARM) | Rate changes periodically | Short-term owners |
| FHA | Low down payment | First-time buyers |
| VA | No down payment | Veterans/military |
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