How to Use a Mortgage Calculator to Compare Home Loans

A mortgage calculator can be a great way to screen the home loans available to you online.  The nice thing about a good mortgage calculator is that it lets you quickly compare loans and gives you a snapshot of the costs you’ll have to pay.

Mortgage rates are pretty low these days but not all mortgages are created equal.  It’s possible that you could get a low interest rate but still end up paying more than you planned due to additional fees.  To help you find the best financing deals around, start out a mortgage calculator to screen the options and make sure you read the fine print of the loan offering very carefully.

Screening Home Loans
To get started let’s find a mortgage. For a decent list of banks offering financing in your area you can check out Bankrate’s mortgage finder.  Here’s an example of listings it gives me for a 30 year mortgage in Knoxville, TN.

You should notice pretty quickly that the first listed loan available isn’t the lowest interest rate. Even if it were the total cost is what matters. Thankfully Bankrate includes a lot of information for you to make an informed decision:

• Mortgage amount – how much you are borrowing. If you’re paying 20% of the home’s value as a down payment then this should be 80% or less of the home’s value. This is the principal balance that you will be paying off over the life of the loan.
• APR – the compound total interest rate you’ll pay over the year
• Rate (with any listed points) – how much borrowing the mortgage balance is costing you
• Fees in APR – any rolled in fees (origination fees, points, etc.) in the mortgage
• Estimated monthly payment – your estimated total monthly outflow to the bank, not including taxes or insurance

A loan could have a great rate, but also have a lot of fees tied up in the APR. What you want is a listing of the total cost, and the monthly payment is a great equalizer when it comes to understanding the total cost.

Check Monthly Loan Costs
If you don’t have the luxury of seeing all the fees that are being rolled into your loan simply take the loan’s interest rate and plug it into a mortgage calculator. One of my favorite calculators is DrCalculator’s Mortgage Calculator – note: you’ll need a newer browser to use it .

This gives you a bunch of different options to include as you look at your mortgage. Variables like principal amount, interest rate, length of mortgage, and then insurance and property tax information for the home you are buying. You can usually look up approximate property tax costs for a house online and add that cost into the calculations.

On the calculator it will also show the total interest over the life of the loan. This can be handy when comparing two different loans or types of loans.

Compare Mortgages Using Amortization Tables
As you are looking at mortgages and deciding to go with a 15 or 30 year fixed mortgage you’ll want to compare the total cost and monthly cost for each. An amortization table shows you how much of each payment of a loan will be interest and how much will be principal.

Here’s a monthly amortization schedule for a $250,000 loan with a 5% interest rate.

The total interest on the loan is $233,141. Now let’s compare to a 15 year loan at 4.5%:

You’ll notice the interest is about $100 lower per month (to start), but the principal payment is a whopping $675 more per month to make up the for the 15 years worth of payments you won’t be making. The total interest on this loan is only $94,247.

Doing comparisons like this — 15 year to 30 year, different interest rates for the same mortgage length, etc. — will show you how much money you could save for a different mortgage.

Kevin Mulligan is a debt reduction champion with a passion for teaching people how to budget and stay out of debt. He's building a personal finance freelance writing career and has written for RothIRA.com, Discover Bank, ING Direct, and many others.

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