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- Written by: admin
- Category: Mortgage Calculators Explained

Introduction

This section will take you through a step-by-step explanation of how a mortgage calculator works and how to interpret the results. This approach is intended to start with a basic mortgage calculator and then build up to more complex calculators.

**Step 1: Calculating An Amortization Schedule**

Your standard mortgage calculator usually calculates your monthly payment based on your anticipated mortgage's 1) balance, 2) term, and 3) fixed rate. Some (like the one we are about to try) will also display an amortization schedule of the loan, separating the annual principal and interest. Now click here for **Basic Mortgage Calculator (Single Loan)** and enter the required information to obtain the results.

**Step 2: Comparing Two New Loans w/o Early Payoff**

Let us compare two amortizing loans with all the same terms except the interest rate. Click here to **Compare 2 New Loans w/o Early Payoff**. The default balances for both loans are $100,000. The default term for both loans is 30 years. The default rate for loan #1 is 2.125%, and the default rate for loan #2 is 2.250%. Generating the results will show 1) a difference in the rates of 0.125%, 2) a difference in the monthly payment of $6.34, 3) a difference in total interest payments over the life of the two loans of $2,284, and 4) a difference in total payments (principal & interest) over the life of the two loans of $2,284.

This is a great little analysis. It is 1) clean, 2) straightforward, and 3) easy to interpret.

However, there are some limitations to this type of simple mortgage calculator, i.e., 1) no ability to adjust for early payoff of the loan, 2) no ability to adjust for a loan that may have already begun amortizing, and 3) no ability to adjust for the effects of present value and the time value of money.

**Step 3: Comparing Two New Loans w/ Early Payoff**

Let us now compare two amortizing loans with all the same terms except the interest rate, and also let us anticipate that we will sell the property in 8 years and pay off the loan early. Now click here to **Compare 2 New Loans w/ Early Payoff**. The default term for both loans is 30 years. The default rate for loan #1 is 2.125%, and the default rate for loan #2 is 2.250%. The default value for "How Long Do You Expect To Live In The Home?" is 30; however, change this to 8. Generating the results will then show 1) a difference in the rates of 0.125%, 2) a difference in the monthly payment of $6.34, 3) a difference in total interest payments over the life of the two loans of $931, and 4) a difference in total payments (principal & interest) over the life of the two loans of $931.

However, there are still some limitations to this simple mortgage calculator, i.e., 1) no ability to adjust for a loan that may have already begun amortizing, and 2) no ability to adjust for the effects of present value and the time value of money.

**Step 4: Comparing An Old Loan To A New Loan**

Let us compare two 30-year amortizing fixed-rate loans, old and new. The new loan will have a principal balance of $100,000. We will assume the old loan (the current existing loan on the property) was originally $102,000, has been amortizing for several years, and has a remaining principal balance of $89,137. Now click here to **Compare (Old) Mortgage To (New)**. The default term for both loans is 30 years. The default rate for the new loan is 2.125%, and the default rate for the old one is 2.250%. The default value for "How Long Do You Expect To Live In The Home?" is 30. Leave this at 30 for now.

Now generating the results will show 1) a difference in the rates of 0.125%, 2) a difference in the monthly payment of -$13.99, 3) a difference in total interest payments over the life of the two loans of $7,952, 4) a difference in total payments (principal & interest) over the life of the two loans of $18,815, and 5) a difference in the term of the loans of 5.08 years.

This is a great little analysis. But, unfortunately, this analysis is relatively 1) clean, but 2) NOT so straightforward, and 3) NOT so easy to interpret.

However, there are still some further limitations to this type of not-so-simple mortgage calculator, i.e., 1 ) no ability to adjust for the effects of present value and the time value of money.

**Step 5: Considering Present Value **

Let us now consider the present value or the time value of money. First, we will apply the current value to the results generated in Step 4. Click here to **Compare (Old) Mortgage To (New) Mortgage Using Present Value**. The default balances for the new and old loans are $100,000 and $102,000. The default "Mortgage Terms" for both loans is 30 years. The default rate for the new loan is 2.125%, and the default rate for the old one is 2.250%.

However, there are two additional input fields; 1) an input field for a discount rate and 2) an input field for the costs to close the loan. The discount rate field has a default value of 1.875%, and the "costs to close the loan" field has a default value of $2,500. For now, leave these set to their default values.

Generating the results will show 1) a difference in the rates of 0.125%, 2) a difference in the monthly payment of -$13.99, 3) a difference in total interest payments over the life of the two loans of $7,952, 4) a difference in total payments (principal & interest) over the life of the two loans of $18,815, 5) a present value of $404, 6) a cost to refinance of $2,500, and 7) a net of -$2,096.

In determining a discount rate, we assume a flat yield curve. It would be much too complex to construct a yield curve using current treasury prices by applying a process called cubic splining and then subsequently discounting the difference in the cash flows between the two mortgages using the various rates along the curve to coincide with different cash flows. Therefore, it is deemed sufficient for consumers to assume a flat yield curve.

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- Written by: admin
- Category: Mortgage Calculators Explained

Our mortgage calculators will calculate your monthly mortgage payment or compare two amortizing loans. Our mortgage calculators will assist you in determine the benefit of refinancing your loan. Select from the left hand menu.

The big question is "Should I refinance?" The answer to this question is complex. There are both economic reasons and personal reasons to refinance an existing loan. This web site really focuses on analyzing the economic benefits.

Determining the economic benefits would depend on many factors, i.e. 1) what is the rate on your existing loan, 2) what is the current rate at which you can refinance, 3) what will it cost you to refinance, 4) how long do you expect to hold the property hence hold the loan, and 5) what is the time value of money.

The calculators on this web site are set up specifically to 1) allow the user the ability to focus on how each of the above factors may affect the potential economic benefit of refinancing an existing loan, and 2) help take the user step by step through the process of understanding the application of these factors. Each calculator will focus on a separate factor at a time. Once the user feels more comfortable he / she can combine the affects of various elements through the selection of a more advanced calculator. The factors / elements are identified by Type 1 (T1), Type 2 (T2), Type 3 (T3), and Present Value (PV) and are briefly described below at bottom in the left hand gray column.

If you are already an experienced mortgage expert or trader of bonds, then just select from the menu using the brief descriptions, input the required information and generate the results. The results will be very clear to an experienced individual and any minute difference between the calculators will quickly become apparent.

If you need to know more, click here to continue reading on the second page.

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- Category: Mortgage Calculators Explained

If you have a current mortgage (Old Loan) and are looking to refinance into a new mortgage (New Loan), we need to generate a current amortization schedule for your (Old Loan). Your current loan (Old Loan) has been amortized. For example, the remaining balance will be less than the original balance, so it will fully amortize in a period (starting from today) that is less than its original stated term. A 30 years mortgage you have been paying for three years will now finish amortizing in 27 years (30 - 3). By inputting your original mortgage amount, rate, and term, the calculator will determine the payment for your Old Loan. By inputting the remaining balance, the calculator will apply the payment of your Old Loan to your remaining balance and generate a current amortization schedule. This is necessary to compare your current loan with a potential new loan. It is necessary to show the cash flows from today so that we can compare the cash flows to your new loan.