How to Use a Mortgage Calculators

Free mortgage calculators are a great home buying tool. You can use a mortgage calculator to determine the approximate monthly payment on a home loan. In this way, mortgage calculators can help you set your "comfort zone" for mortgage payments.

Using a Mortgage Calculator

To determine your mortgage comfort-zone, you need three things: a budget, a price, and a free mortgage calculator. For the price, just start with the cost of a house you think you might be interested in buying.

At first, don't worry about whether the price is too high -- you'll find that out soon enough when you run the numbers through a mortgage calculator.

Next, run the home price through a free mortgage calculator at current rates and at a 30-year fixed mortgage. (You might choose a different mortgage type later on; but this exercise is just to get a ballpark mortgage payment based on home price, so choose the 30-year fixed option for the sake of simplicity.)

Free mortgage loan calculators can easily be found on the Internet. Just type "free mortgage calculator" into any major search engine, and you'll find several.

Sample Mortgage Calculation
Let's say I've done some research and found that a home in my preferred area with the number of rooms I want, and offering the features I have in mind, comes to about $200,000. I plan to get a loan for 80% of this amount and then split the remaining 20% between a down payment and a second mortgage. Now I'm ready to plug those numbers into a free mortgage calculator.

Side note: If your down payment is less than 20%, most lenders will require that you pay mortgage insurance (see glossary at the end of this guide). One way to get around this is to obtain a second mortgage from a second lender. A common example is the 80-15-5 breakdown; which means 80% from a primary lender (first mortgage), 15% from a secondary lender (second mortgage), and 5% down payment (out of pocket).

Getting back to our mortgage calculation, I want to find out what my mortgage payment would be on $160,000 (80% of the home price of $200,000). So I go to (one of many free mortgage calculators online) to run the numbers.

For "principal," I enter $160,000 into the mortgage calculator. For "interest rate," I enter 5.75%, which is the current interest rate at the time of this writing. Most free mortgage calculators will have this field filled in for you, based on current rates. For "number of years" I put 30.

Remember, we're just trying to get a ballpark monthly mortgage payment. There are many different loan types to choose from, but for demonstrations purposes we've chosen a common type of mortgage (30-year fixed).

I hit the "Calculate" button, and this is what I get:

Your Monthly Payment for 30 Years
for an Interest Rate of 5.75 %
on a Loan Amount of $ 160,000:

$933.72 a Month

I would run these numbers through at least one more free mortgage loan calculator, just to validate them. Then I would repeat the process for my second mortgage amount. Of course, if you can afford to put 20% down and avoid the second mortgage scenario, the math is much simpler.

Now I can more accurately figure this price range into my budget -- a quick and easy way to see if I'm in or out of my comfort zone, and to find out exactly what my comfort zone is in the first place. This is the value of using a free mortgage calculator.