How Do I Calculate My Mortgage Rate?

Photo Courtesy: Dean Mitchell/iStock

When you’re getting ready to take out a new mortgage, you likely have questions about your interest rates and monthly payments. It’s important to understand how to budget for and around these costs, which can be some of the largest you’ll have month after month. Fortunately, you can use some key tools and information to get solid estimates. Here’s what you need to know about calculating your mortgage rate.

How Are Mortgage Payments Calculated?

Mortgage payments are calculated by dividing up the principal amount by the number of months in your mortgage term and factoring in the cost of interest, property taxes and homeowners insurance. In some cases, you’ll need to include private mortgage insurance (PMI), as a down payment below 20% can trigger this extra cost.

In most cases, mortgage payments first factor in the amount of interest generated each month, along with the escrow account payments designed to cover property taxes and insurance. PMI is also brought into the equation early, with principal payments being the last point factored into the total.

The reason that principal payments are usually the last part is that mortgage payments are designed to remain relatively flat over the life of the loan. The only exception with fixed-rate mortgages is when insurance and property tax rates fluctuate. Those can change over time. But, by keeping things steady, it’s more predictable for borrowers.

For adjustable-rate mortgages, monthly payments may vary more frequently. Once the adjustable rate kicks in, lenders assess the mortgage at set intervals and may increase what you owe for interest based on shifting economic factors.

How Do I Estimate My Mortgage Rate?

If you want to estimate your mortgage interest rate specifically, you can use current figures from lenders as a baseline. You might want to look up average mortgage rates based on recent loans people have taken out and look at what lenders are currently offering.

Just remember that lenders usually advertise their lowest mortgage interest rates. Only the most well-qualified borrowers will get those rates, so if your credit is less than perfect, you may want to assume you’d have a higher rate. Often, you can use the average to see what a well-qualified — but not perfect — borrower can secure.

How Do I Use a Mortgage Calculator?

Using a mortgage calculator is simple. You usually only need to provide some basic information to get a rough figure, such as the selling price of the home, the down payment amount, the length of the mortgage and the associated interest rate.

If you can include property tax and homeowners insurance estimates, your results are even closer to what you’ll likely get with your loan. Similarly, if you may owe PMI, finding a calculator that includes this cost in the calculations is essential for accuracy.

Once you provide the data, the mortgage calculator does the rest. Some require you to click a “calculate” button, while others give you results automatically, so keep that in mind.

What Are the Best Mortgage Calculators?

When you’re looking for reliable figures, focusing on the best mortgage calculators is essential. One excellent option is the mortgage calculator from real estate website Zillow. There, you can see your estimated total monthly payment, as well as a breakdown showing insurance, property taxes and, if applicable, PMI. If you’d like, you can even include HOA dues or use the built-in tool to get pre-qualified for a mortgage to secure more accurate figures.

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However, that’s not the only option available. Some other leading mortgage calculators include those from Forbes and Realtor.com. Almost all mortgage calculators provide similar information. Since that’s the case, use the one with the features you’d like included — and that feels easiest to use — to make sure you get the estimates you need to make a buying decision.

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