Have you ever heard of a mortgage calculator?
You may have been thinking about buying a home for quite some time now, but something has held you back. Whether it’s been the volatility – or unaffordability – of your housing market, the uncertainty of your employment situation, or just the magnitude of the commitment, you’ve been sitting on the sidelines. One thing that’s true about any big decision, though, is that the more informed you are about the situation, the more confident you’ll feel about the decision. Simply by using various mortgage calculators, you’ll have a much better picture of your overall financial situation and feel more confident than you did before, specifically as it relates to the type of mortgage you’ll be able to get.
There’s no hard and fast rule when it comes to which mortgage calculator to use first, but a good place to start is with the Mortgage Payment Calculator. This is because as a first-time home buyer, you may not realize how the purchase price of a home turns into a monthly payment. With this, you can plug in the size of mortgage you want (which is the purchase price of the home minus the amount of money you have for a down payment), the interest rate, and the amortization period – how long you want to be given to pay off the mortgage in full. The results from this may be somewhat incomplete in that it doesn’t give you any information specific to your particular situation, but it is easy to play around with the numbers and for you to see how changes directly impact your monthly payment amount.
In addition to monthly payments, the Mortgage Payment Calculator also shows you how those payments change based on the frequency of your payments. You can make payments weekly, bi-weekly, and ‘half-monthly paid fortnightly’, which means that the annual repayments are divided by 12, then divided by two, one for each two-week period in a month. Each option also includes the amount interest you’ll pay over the life of the loan for that particular payment frequency.
The calculator that may be best helpful to your individual situation is the Mortgage Affordability Calculator. When people think about what they can afford, they tend to either start with how much they’re currently paying in rent or for another housing arrangement, and how comfortable they are with that amount. When it comes to getting a mortgage, however, the criteria is slightly different. To a mortgage lender, your current housing expenditures have no bearing on how much you can afford. Instead, that number is based on a few set parameters:
- annual pre-tax income
- co-applicant pre-tax income
- monthly living costs, including property tax, condo fees, and heating costs
- monthly debts, including credit cards, car payments, and other loans
- the type of home you’d like to purchase
- the province where your home purchase will take place
- whether or not you are a first-time home buyer
- the amortization period of the mortgage
- the mortgage interest rate
- the type of mortgage you’re getting
The mortgage affordability calculator applies the federal lending rules that most lenders use to qualify you for a mortgage, which is why it also includes factors that are important to lenders when assessing your mortgage suitability. You can use the amount generated by the Mortgage Affordability Calculator to input into the Mortgage Payment Calculator to get a more accurate assessment of your projected monthly payment.
If you have a down payment of less than 20 per cent of the purchase price of the home, then you’ll need mortgage insurance – and don’t worry, there’s a calculator for that, too. The Mortgage Insurance Calculator takes the cost of the home, the amortization period, and your down payment, and will tell you how much you will pay for the mortgage insurance you’ll need, as well as the total amount of your mortgage once the insurance premium is included. Mortgage insurance is often an afterthought, but some homebuyers would rather wait until they have a sizeable enough down payment to purchase a home so that they can avoid needing mortgage insurance, so it can be an important figure to know.
Don’t forget that your decisions don’t end when you get a mortgage. You’ll be making mortgage decisions for as many terms as it takes before you repay your loan. If you’re considering refinancing, you can use the Refinance Mortgage Calculator to calculate how much money you’ll save over the life of your mortgage if you refinance at a different interest rate, as well as the amount of time you’ll have to stay in your home in order to see the savings benefits. Do you break your mortgage or wait until the end of your term? Let the numbers guide your decision.
Do I have to use a mortgage calculator?
Okay, so how you know what they are and how to use them (input data into fields, click ‘calculate’, profit), but what’s the benefit?
The biggest benefit to using an online mortgage calculator is that it’s a great starting point for figuring out where you stand when it comes to mortgage preparations. Getting a mortgage is daunting, and many prospective home buyers aren’t prepared – not because they’re averse to planning ahead, but because they don’t know where to start. Even if you call a mortgage broker before doing anything else, the broker needs information on your net income and expenses in order to find the most suitable mortgage product available. As a buyer, online mortgage calculators give you a good place to start while in the comfort of your own home, and if it turns out that you need a little bit more financial preparation than you thought, then you can go back to the drawing board.
You do want to keep in mind, though, that the mortgage calculators are to be used as a preparation guide – not fact. Don’t expect to take them to a broker or into a bank branch and get exactly the type of mortgage that you expected or for the amount that you projected. Lenders look at a number of things that are not included, simply because they’re too dependent on to the particular situation and lender, such as your Beacon score and credit history, the type of property you want to buy and how it’s appraised, and your type of employment and income.
If you jumped the gun and got a mortgage pre-approval first, not to worry – the calculators can be an even stronger tool since you’ll have an exact interest rate to use.
Honesty is the best policy
If you don’t have the appropriate data to input into the calculators, then take some time to do the homework beforehand. For example, if you’re using the affordability calculator, but don’t know what property taxes look like for the type of home you want to buy, take a look at some MLS listings and find out. There would be no point for you to say that your property taxes would be $150 a month, when in reality it’s $250; it would throw off your calculations and lead you to believe your monthly costs would be less than they actually would be. Likewise, if you don’t know your monthly debts, don’t just hazard a guess. Look at your financial statements from last month and determine where your money is really going.
Your mortgage broker will be able to best advise you on how to apply for a mortgage. If you go in armed with your raw data, you can get more accurate answers and factual information, and make a decision about getting a mortgage with the best possible outcome.