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4. How to Use a Mortgage Calculator

You may be thinking about purchasing a house or refinancing the one you’re already in. This decision brings with it number of questions. What kind of interest rate can I get? What kind of payment should I expect? How much money can I save by paying off the loan before the end of the term?

In the latest video in our Quicken Loans Zing Blog Education Series, Eddie Berger, director of solution consulting at Quicken Loans, explains how you can use mortgage calculators to play out various scenarios and know what to expect when you’re ready to apply.

As Berger explains, there are four variables in any mortgage calculator:

• Term
• Loan amount
• Payment
• Interest rate

If you know three of these variables, you can solve for the fourth. We have three different types of calculators on the Quicken Loans website: purchase, refinance and amortization.

## Purchase Calculator

If you’re looking to buy a new home, our purchase calculator can help you run the numbers.

First, the calculator asks whether you want to pay off the home sooner or have a lower payment. Next, you put in how much you want to spend on the house and the amount of your down payment. This determines your loan amount. A rough credit range helps determine the interest rate you qualify for. After that, you put in the ZIP code where you’re looking to buy.

The result will bring up a screen with a rate and a payment. You can see several different rate options and specify whether you want a fixed or adjustable rate mortgage (ARM), etc. Taxes and insurance aren’t included in the payment on any of the calculators, but if you know how much you would be paying in your area, you can add this information, and the payment will be recalculated for you.

## Refinance Calculator

What if you’re not looking to move to a new place, but instead looking to refinance your current home? There’s a calculator for that, too.

The refinance calculator first asks about your primary goal for your new loan. You can choose between lowering your payment, paying off your home sooner and getting a lower interest rate. Depending on which option you select, you’ll either be asked what your current monthly payment is or your current interest rate.

After that, you’ll be asked to estimate how much your home is worth and what you still owe to determine the amount of the loan. Then you input a rough credit estimate and your ZIP code.

As with the purchase calculator, the results page will show you a sample rate and payment. You can play with the rate and type of loan, as well as add taxes and insurance.

## Amortization Calculator

Amortization is just a fancy word for the schedule that determines how much of your payment goes toward paying off principal and how much goes toward interest. At the beginning of a loan, more of your payment goes toward paying interest than paying down your principal. The opposite is true at the end of the loan.

What’s pretty cool though is that you can pay extra on your monthly mortgage payment and have that amount applied to your loan’s principal balance. By paying a little bit extra, you can pay down the principal faster to save on interest.

The purpose of the amortization calculator is to show you just how much interest and how many months of payments you can save by tacking some more money onto your payment.

The calculator asks you to input your current loan amount, the length of your loan, your interest rate and the state you live in. You can also see what the effect of a one-time, monthly or yearly additional payment would be on your number of monthly payments or interest.

The results show a sample monthly payment (excluding taxes and insurance) and the interest you would pay. If you’ve chosen to add an additional payment, it shows you how much interest and how many months of payments you could save by putting extra money toward paying down your principal. There’s also a graph that breaks down how much of your payment goes toward principal and how much goes toward interest.

Eddie shows how it all works in the video above. If you have any more questions about our mortgage calculators, contact a Home Loan Expert today!