Even a slight variation in your interest rate can have a significant impact on your home loan — that’s why it’s always a good idea to shop your rate and terms among various lenders. Using a mortgage interest calculator is also a great tool to understand this impact and how different interest rates affect your payment.
Let’s look at a quick example. The average price of a home in March 2021 was $329,100. If you made a 6% down-payment (the norm for first-time buyers in the same year) at 2.94% interest, you’d pay $154,195 in interest over the life of the loan. The same scenario with a 3.9% interest rate accumulates $215,937 in interest. This small variation in the interest rate added a significant cost to the loan.
With a simple mortgage interest calculator, home buyers can input different rates to see how they change the cost of their loan.
Using a Mortgage Interest Calculator
Besides understanding the impact of your interest rate, there are other benefits to using a mortgage calculator. Let’s look at a few examples of how you can leverage what you learn from a mortgage calculator.
#1. Solidifying Your Price Range
Using a mortgage calculator with interest is also a great way to better understand your price range. By inputting some simple information, you’ll get a clearer picture of how much home you can afford — which can inform your home search.
It’s important to understand your price range from the beginning so you can avoid shopping for homes outside of your budget. And, when making an offer on a home, you’ll know your available wiggle room in negotiations.
#2. Learning How Variables Impact a Loan
As we mentioned, even a slight variation in the interest rate can greatly impact the cost of your loan over time. You can use the data from a mortgage interest calculator to decide what loan type is right for you based on its corresponding rate.
You can simulate what your payment will look like if you choose one loan over another. You can easily see that your rate will be X with an FHA loan, but it would be X if you went conventional. This will clarify how your choice of loan will impact what you can afford toward your mortgage.
#3. Learning How Variables Impact a Loan
Your credit score will impact the interest rate you’re offered. Using a mortgage calculator with interest can help you gauge how potential changes to your credit score will tangibly affect your mortgage. For example, you may qualify for one interest rate with a 630 credit score. But, if you’re able to build your credit score over time, you’d be able to understand how the rate would potentially go down if market conditions remain the same.
#4. Deciding When to Buy
A mortgage calculator can also help you with the timing of your home purchase. By plugging in the numbers, you can identify whether it’s worth the wait to build your credit, wait for a drop in interest rates, or move forward knowing that it’s the right time for your unique situation.
Find a Mortgage Interest Calculator
Don’t start your home search without understanding your financing options. Your real estate agent can refer you to lenders in your area that can help you better understand your buying power.
To explore homes for sale, be sure to explore our listing portal. And if you’re interested in seeing how various interest rates could potentially impact your loan, click here to try our mortgage interest calculator.
