How does a home loan calculator work?


Quick Answer

Home calculators take the algorithm for calculating the principal or interest for a home loan and provide users with the result. Calculators can help potential homeowners determine how large a loan they can afford, states Bankrate.

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Full Answer

There are several types of home calculators, and each one fills a specific need, according to Bankrate. However, each calculator has the same ultimate objective: helping users determine how much home they can afford. For example, if a person wants to determine a monthly mortgage payment, entering the loan amount and mortgage term in years into a mortgage calculator calculates the monthly payment. For example, a loan amount of $100,000 to be paid off in 15 years equates to $764.99 a month, per the mortgage calculator on Bankrate, as of June 2015.

Using a calculator on a site such as Bankrate makes calculating home mortgage payments easier because the user doesn't have to know the formula for each type of mortgage. For instance, a regular mortgage and a balloon payment mortgage are calculated using different formulas. By utilizing the calculators online, users are less likely to make a mistake when completing calculations. The online calculators are programmed to do these calculations, so a user only needs to know the loan amount and the length of time for the loan, states Bankrate.

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