How to Use a Mortgage Calculator to Plan Your Home Purchase

When you're planning to buy a home, one of the most crucial steps in the process is understanding your potential mortgage payments. A mortgage calculator can be an invaluable tool for estimating monthly payments and determining the total cost of a loan. In this article, we'll walk you through the essential inputs of a mortgage calculator, explaining what each one means and how it impacts your home buying decision. To understand how much you can borrow, check out our How Much Can I Borrow Calculator instead.

1. Home Price

What is it?
The "Home Price" input represents the total cost of the home you're looking to purchase. This includes the asking price of the house, but it may also include additional costs like closing fees or necessary repairs if you're factoring them in. For the most part, your home price and monthly payment is not going to include any other closing costs, etc. At times, you can roll in some closing costs into your loan. This figure is essential because it determines the size of your mortgage loan and, consequently, your monthly payments.

Why it matters?
The home price is the starting point for calculating your mortgage. A higher home price will result in a larger loan, which can lead to higher monthly payments. It's important to be realistic about what you can afford to ensure that your mortgage payments fit comfortably within your budget. There are many factors that influence the market price of a home—location being the most important factor. For example, a home in Alhambra that has close proximity to one of the top 10 restaurants in Alhambra is going to be generally more desirable due to convenience and amenities.

2. Down Payment

What is it?
The "Down Payment" is the upfront amount you pay toward the home price. Typically, this is expressed as a percentage of the total price. A larger down payment reduces the total loan amount, which can lower your monthly payments and possibly secure a better interest rate.

Why it matters?
A larger down payment means you'll be borrowing less money, which can lower your monthly mortgage payments and help you avoid paying for private mortgage insurance (PMI) if your down payment exceeds 20% of the home price. It also shows lenders that you're financially responsible, which can improve your chances of loan approval.

3. Interest Rate

What is it?
The "Interest Rate" refers to the percentage charged by the lender for borrowing money. This is one of the most critical factors in determining how much your mortgage will cost you over time. The rate can be fixed (remaining the same throughout the loan term) or variable (changing over time based on market conditions).

Why it matters?
The interest rate directly impacts your monthly mortgage payment and the total cost of the loan. A higher interest rate results in higher monthly payments and more paid in interest over the life of the loan. It's essential to shop around for the best possible interest rate to keep your mortgage affordable.

4. Loan Term (Years)

What is it?
The "Loan Term" refers to the length of time over which you’ll repay the mortgage loan. Most mortgages have terms of 15, 20, or 30 years. The loan term affects both your monthly payments and the total interest you’ll pay over the life of the loan.

Why it matters?
A longer loan term (such as 30 years) results in lower monthly payments, but you will pay more in interest over time. A shorter loan term (like 15 years) means higher monthly payments, but you’ll pay less in total interest. Consider your budget and long-term financial goals when choosing a loan term.

5. Amortization Schedule

What is it?
The "Amortization Schedule" shows the breakdown of each loan payment over time, detailing how much goes toward paying down the principal and how much goes toward paying interest. It is often displayed yearly but can be broken down monthly, quarterly, or even biweekly.

Why it matters?
An amortization schedule helps you understand how your loan will be repaid and how much interest you will pay at each stage of the loan. It gives a clear picture of how much of each payment reduces your loan balance and how much is paid in interest. This can help you determine if making extra payments will have a significant impact on your loan’s total cost.

6. Payoff Date

What is it?
The "Payoff Date" is the date when your mortgage will be fully paid off, assuming you stick to the current payment schedule. This date is an important milestone for homeowners and provides a target for when the debt will be cleared.

Why it matters?
Knowing your payoff date helps you plan for the future and determine how long you will have monthly mortgage payments. If you're considering refinancing or paying off the loan early, understanding your payoff date gives you a clear idea of how this will affect your long-term financial goals.

What about other monthly expenses?

Keep in mind that most calculators do not include other monthly expenses, such as:

• Accrual or payment for property taxes. Generally about 1.25% of the price, per year, in Los Angeles County

• Home insurance. Generally about $100-200 a month

• Utilities. Varies based on usage, but generally $250 - $500 a month

• HOA, if property is a condo or townhome. Varies widely. < $150 on the cheap end, can be $750+/mo for luxury complexes.

• Taxes in your locality that are part of your cost of living. For example, read our article on Alhambra tax rates to get an understanding of what your city’s various taxes levied may look like

Our calculator DOES factor these expenses in the Loan Summary section. Feel free to play around with those figures—if you’re ready to learn about making an offer, check out our guide on How to Make an Offer.

Conclusion

A mortgage calculator is an indispensable tool for anyone looking to buy a home. By understanding the various inputs and how they affect your monthly payments, you can make informed decisions about your mortgage and home purchase. Whether you're factoring in a large down payment, considering making extra payments, or just trying to find a loan term that works for your budget, the mortgage calculator can provide the insights you need to make the best financial decision for you and your family. If you need additional help, speak to a local Realtor that knows the market.