Home Payment Calculator

A home payment calculator is an excellent tool to help one understand what one can expect to pay for a home. Although a good house payment calculator will require some basic information from the borrower, it can give an amazingly accurate estimate of one’s home price.

To understand what a house payment calculator does, one needs to understand what goes into a house payment. When real estate and mortgage professionals talk about “PITI,” they are not expressing sympathy for someone who will have to start paying for their house. They are, instead, referring, to the four components of a house payment—principal, interest, tax and insurance. Although only principal and interest are paid to the lender, funds to be applied towards the annual or semi-annual tax and insurance payments are also collected towards the monthly payment. Some home loan payment calculators can estimate some of these numbers, but for a truly accurate payment, one will need to know all four.

As an example, consider a $250,000 house in Minneapolis, Minnesota which requires a $200,000 mortgage at 5.10%. The property taxes will be around $3,000 per year and the insurance premium around $900. A home loan payment calculator would calculate a total monthly payment of $1410.90. This includes a PI payment of $1085.90, of which $850 goes to tax-deductible interest, $250 goes towards property taxes and $75 is applied to the pro-rated insurance premium.

When using a home loan calculator, there is one important rule to remember: garbage in, garbage out. This is an expression which is popular in both the accounting and computing fields which means that the results that one gets can only be as good as the inputs that one puts in. With this in mind, there are a few pitfalls in using a home payment calculator. The first thing to do is to use an accurate rate. If one does not have very good credit, one will likely not get the lowest rate. Furthermore, some loans may carry additional monthly fees, such as MPI or PMI. These insurance coverages are added to loans where the buyer makes a down payment of less than 20%, and can easily cost $200 per month. If a payment calculator does not know that the coverage will be necessary, it cannot be entered into the equation.

A home loan payment calculator is an amazingly useful tool. Not only can it compute the payment for a given house and a given loan, but it can also be helpful in “what if” planning. For those who do not know the effect of using a loan with a shorter amortization, or going to a fixed rate loan with a slightly higher rate, or of purchasing a larger, or smaller home, the calculator can make it possible for everyone to understand their options from the privacy of their own home. This can help one to know what is reasonable before engaging mortgage and real estate brokers to help them and make the home buying process easier and more satisfying.