How Does a Mortgage Loan Calculator Work?


Quick Answer

A mortgage calculator prompts a user to enter certain parameters, including mortgage amount, mortgage term, interest rate and start date, as stated by Bankrate. The calculator then computes this data to determine the minimum monthly payment amounts. In some instances, the calculator generates a table output that displays each payment.

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How Does a Mortgage Loan Calculator Work?
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Full Answer

Once all information is accurately entered into a mortgage calculator, the generated output is a monthly payment figure that has multiple component. These components are typically principal and interest. More advanced mortgage calculators provide a detailed schedule of payments known as an amortization table. This table actually breaks out the principal and interest amounts for each monthly period. Borrowers are free to pay more than the listed amount on an amortization table, as the amount on the table simply represents a minimum payment. However, if a borrower pays a different amount, then he must utilize the mortgage calculator again to generate a new amortization schedule.

Mortgage calculators assist homeowners or borrowers in understanding repayment terms. However, there are multiple types of mortgages which can lead to complications in the calculations. Some mortgage calculators do not consider whether the mortgage is an adjustable-rate instrument or a fixed-rate instrument. Therefore, a user should ensure that he is aware of the type of mortgage to compute before entering the appropriate data into the mortgage calculator.

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