How to Use Home Loan Calculators

If you're in the market for a new or refinanced home loan, you've probably encountered a number of mortgage calculators that ask for inputs and return results. These calculators can be helpful in your search for a loan, if you know how to use them and understand what they do.

Here's a quick snapshot of three calculators.

Mortgage Loan Payment Calculator

A simple mortgage loan payment calculator uses three inputs:

  • Loan amount.
  • Interest rate.
  • Term.

The result is the monthly payment on a home loan of that amount with that term and interest rate.

This type of calculator may also offer other variables, such as an option to include the property tax and homeowner insurance in the monthly payment.

It's important to know that mortgage payment calculators typically assume a fixed interest rate. If the rate is variable, the payment could change.

Maximum Loan Amount Calculator

A typical maximum loan amount calculator uses the borrower's income and debt obligations to calculate a maximum housing expense on a monthly basis. That figure is then used, along with an interest rate and term, to calculate a maximum loan amount for that borrower.

It's important to remember that this type of calculator relies on ratios that might not apply to every borrower's situation. It also uses inputs for income and debts that lenders might not all count the same way.

Borrowers shouldn't automatically or necessarily get a home loan for the maximum amount they potentially can qualify to borrow.

Refinance savings calculator

A basic refinance savings calculator helps borrowers figure out how much they would save if they refinanced their mortgage.

Typical inputs are:

  • Monthly payment, loan balance, interest rate and remaining term on the existing home loan.
  • Interest rate and term on the new loan.
  • Costs associated with refinancing.

The result will show the savings on the new monthly payment compared with the current payment.

This approach focuses only on the payment savings, not the total interest expense, which should be another consideration of whether to refinance an existing loan.