How to use a mortgage calculator for your financial planning

bulram | March 30, 2013

Mortgage calculator

Today’s high tech world provides enough innovation to turn your average family member into a tactical investor capable of tailoring equities, overpayments and loan comparisons to produce the highest return on investment. Today’s mortgage calculators offer far more than simple number crunching capacities. They guide consumers through comprehensive comparisons between rates, equities and products, placing both affordability and returns potential in the spotlight. With such tools, even the most amateur buyer can gain a tactical advantage in an ever-fluctuating market.

Today’s banking environment has made mortgage shopping a tangled and confusing endeavor. Attempts to minimize risk have transformed fixed and adjusted rate bonds into something far more complex than they were before the credit crunch. High credit scores have become the norm, leaving the usually favorable fixed rate options with heavy terms. Interest rates are stacked in the lender’s favor, leaving those with pockmarked credit reports with impractical rates. In many cases, adjustable rates are more desirable, particularly for those who feel confident in their ability to predict the future of the housing market. Today’s economy remains agitated and while the general consensus is to choose fixed rates below 6% over five years, the wide variation between terms makes comprehensive calculations a necessity.

Standard mortgage calculators reduce complex documents into bare bones numbers entailed in future repayments. Principle premiums are calculated together with interest rates on a monthly basis, revealing how the capital amount will decline over time. These simple guides are useful for establishing a basic outline to budget with during initial product comparisons. When you have whittled down your options, a more involved calculation tells you how profitable your core products will be.

It is often helpful to use an offset mortgage calculator to strategize savings. Increasing the deposit, adding equity and planning overpayments are all strategic ways to carve away unnecessary monthly expenses. Offset calculators refine your search by creating defined boundaries to work with when comparing products.

Mortgage lenders have become fiercely competitive in recent years, leaving first time property buyers baffled about fixed rate deals that appear too good to be true. Some borrowers offer rates of 3% or less over five years. The typical variable rate remains between 3% and 6%, leaving many investors tempted to remortgage under improved terms. Remortgages often come with hidden penalties, legal and valuation fees. Compound interest, schedules and hidden costs can all be fed into calculators to determine the amounts owed after each month. Where fixed repayments apply, interest increases are factored in and calculated according to the principle amount arrived at the end of the fixed rate period.

Financial planning with a mortgage calculator has become an analytical process in which consumers can assess various repayment scenarios and thus hone in on the ideal risks and costs over the loan’s lifetime. They allow you to weigh lump sum repayments against accelerated premiums so that the strategy with the highest returns and lowest risk can be honed in on. A competitive lending industry has complicated the search for terms, but today’s technology helps buyers to map out their ideal repayment scenario.

Myke Thomas is a financial writer with specialized knowledge of the banking sector. He writes extensively about financial planning with a mortgage calculator and contributes regularly to investment blogs.