Mortgage Calculators
Do you understand the way a mortgage really works? How the repayments are calculated? Why in the early years the balance of the outstanding mortgage hardly goes down at all?
Don't worry you are far from being alone. In fact, you are probably in a majority. To begin with, mortgage calculations are all about figures, and most people dislike, or have a blind spot for, anything mathematical. Furthermore, on the face of it mortgage calculations seem complicated, although really they are not.
I will not go into a detailed lesson here, it is not necessary, and it is not what this website is about. You can use a mortgage calculator, and in so doing that may help you to understand mortgages and the way the repayments, interest charges, and balances are calculated. But do try to bear in mind the following simple points for an ordinary repayment mortgage, as opposed to an interest only mortgage:
1. Your annual mortgage calculation will be based on the outstanding balance of the loan. At what point in the year depends on the mortgage contract. The interest may be calculated on an annual basis, monthly basis, or even daily basis. Whatever the balance owed at that time, will form the basis of the interest charge. Commonly, it is monthly, but be sure to find that out before you apply for the mortgage, as this can affect the long term cost of the mortgage.
2. Each year, the balance on your mortgage will be less, so the interest less (on the assumption that interest rates stay the same). With less interest but the same repayments, you pay off more of the loan each year. This means that there is a downward spiralling effect with your end of year mortgage balance. To begin with, it hardly seems to move; but as the years pass, the repayments start to bite into the outstanding balance, and you start to notice the balance falling at an increasing pace.
The article below goes into mortgage calculators and mortgage amortization in more detail.
Understanding The Mortgage Amortization Process - Using A Mortgage Calculator
It is no wonder that mortgage amortization is quite often a puzzle to the consumer. As a former practicing finance professional I can recall qualified accountants arguing over what was amortization and what was depreciation. Nothing to do with mortgages, but if there's confusion amongst some finance professionals over the word amortization, then I think the average consumer can be forgiven for getting confused over the same word.
Really, it is not absolutely necessary for you to fully understand amortization and how your monthly mortgage payments are determined. However, it will help. For example, if you appreciate the basics of the calculation, you will soon appreciate that by just making a slightly higher payment in the early years of your mortgage, the loan may be paid off a lot sooner. Anyway, knowledge is power, so the more you understand such an important transaction in your life, the better for you and your financial welfare.
What Is A Mortgage Amortization?
When a mortgage loan is amortized, the amortization schedule will be used to calculate the amount of your monthly mortgage repayment. A normal, or standard, mortgage amortization will allow for the monthly mortgage payment to cover all interest accrued on the loan in the last thirty days since your last payment, and a balance that will be applied to the original principal balance of the mortgage loan.
In following a mortgage amortization schedule, a borrower is paying off the balance of the mortgage loan principal, a little bit each month, and thus, at the same time, building equity into his home. The amount of loan principal being paid off increases each year. You will not find necessary to know the mathematical formulas that are used in mortgage amortization.
Just understanding the basics will make things a lot clearer for you. Such as:
1. the ways that you can control or alter your mortgage amortization – thus allowing you to pay less for your home, and
2. that you know what questions can be answered using a mortgage amortization schedule or a mortgage calculator.
Playing with a mortgage calculator, also sometimes called mortgage amortization calculator or mortgage rate calculator, can be fun and a good home finance education. The mortgage amortization process should start to become clearer to you as you try out different payment levels and other variables. A mortgage calculator will take seemingly complex mathematical formulae, and illustrate them in ways that are easier for the average consumer to understand.
One of the fun, and most educational, parts of using a mortgage amortization calculator, is that it will show you just how much money you can save over the life of the loan, simply by paying off just a little bit extra on the principal of the loan. Whether you make a large sump sum payment onto your mortgage principal, or add a small amount to each monthly payment, by playing with a mortgage calculator you will clearly see that it can save you tens, or even hundreds, of thousands of dollars over the life of the mortgage. Seeing the results of the calculations on screen will surely encourage many to pay off their principal quicker. A mortgage calculator, therefore, can become a money saving device that is good for your financial discipline.
If you have never used a mortgage calculator, you may be surprised at the amount you can learn. Any search at the likes of yahoo, MSN or Google, will bring up many sites in the mortgage business with digital versions of mortgage calculators free for your use. So, enjoy, learn and save.