Mortgage Loan Calculators

Knowledge of Mortgage Loan Calculators help in easier repayments

It is common knowledge that it is impossible nowadays to buy a property with hard cash. With more and more young persons desiring to have their own home, property mortgage had assumed significance as a means of home buying. Even companies purchase properties through mortgage, so that the liquidity of their working capital requirements is not affected by funds that get locked up in immovable properties. Interest rates and repayment periods are two important factors in mortgage. Hence, it is vital to have a clear idea of these two major items that are generally termed as mortgage loan calculators.

There are two ways of reducing the monthly repayments on mortgage loans, so that the burden of repayment is not severe but manageable. You could either plan for the best interest rate options so that the repayment amounts are lower. On the other hand, you could opt for a longer repayment period in order to have reduced repayments, even though the interest payment amount accrual would be more in this latter option.

The effective interest rate is generally known as annual percentage rate (APR). The APR includes the total loan amount and one-time fees like documentation charges, processing fees, insurance costs, registration charges, etc. A few examples would provide you a better picture about how the interest rates work on your loan repayment.

An interest rate of 10% per annum could be expressed in several ways. A lender would tell you that the monthly interest rate is 0.7974%. On the other hand, the lender might say that the annual interest rate is 9.56%, compounded monthly. A few of them might even express the advance annual interest rate as 9.091% to make it look cheaper. Do not get carried away by these gimmicks. Remember that the effective interest rate charged would look even more attractive, where the interest rates are much higher than the 10% that we had assumed.

To elucidate this point further, let us imagine that a loan amount of $100,000 is repaid in 12 equal monthly installments and that the monthly repayment amount is $8,771.56. You would be repaying a total of $105,258.72 at the end of the 12-month period. In this case, the effective annual interest rate is not 5.26%, because you had been repaying the principal loan amount every month, not at the end of the twelfth month.

Another example would be the repayment of $100,000 in 240 monthly installments of $946.01, at an effective monthly compounded interest rate of 9.569%. Let us assume that the principal loan amount also included a processing fee of $1,000. The effective APR in such a case is not 10%, as it would normally appear to be, but 10.31% in reality.

One another point that had to be considered in the decision of interest rates is the choice between fixed interest rate mortgage and adjustable interest rate mortgage or variable interest rate mortgage. Prior to June 2004, the Federal Reserve of the United States was keeping its prime lending rate at 1% but increased the same to 5.25% at the end of June 2004 in 17 consecutive hikes of 0.25%. A borrower opting for a fixed interest rate mortgage loan prior to June 2004 at interest rates around 2% to 3% on the loan would not be affected by the rise in the rates. However, a person, who had decided on an adjustable interest rate, would be severely impacted by the surge in the rate, because of the higher rates that would be operable on the mortgage.

The same interest rate conditions are true for most of the nations in the world. In the last 2-3 years, all the central banks had been raising the interest rates. However, it is generally felt that the rates are near their peak levels now everywhere and are not likely to go up much further in the near future. In fact, the only way that the rates could go now is down, even if it does not happen immediately. Under the circumstances, it is advisable to choose adjustable rate mortgages to benefit from any reduction in the rates in future. A decision on fixed interest rates at this point could only be termed as suicidal.

The mortgage repayment period also plays a vital part in hassle-free repayment. Financial institutions offer mortgage loans ranging from a repayment period of 3 years to 30 years as a normal practice. A longer repayment period would entail paying more amounts as interest, but would result in lesser monthly installments. On the other hand, a shorter period would lead to considerable saving in interest payments but the burden on monthly repayments would be significantly higher.

Hence, while processing a mortgage loan, the mortgage loan calculators of interest rate and repayment period had to be carefully considered for repayment of the mortgage without any future default risks. Further, the current level of income and possible future income levels have to be prudently evaluated to avoid the danger of unwanted property foreclosure by the lender.