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This mortgage calculator can be used to figure out monthly payments of a home mortgage loan, based on the home's sale price, the term of the loan desired, buyer's down payment percentage, and the loan's interest rate. This calculator factors in PMI (Private Mortgage Insurance) for loans where less than 20% is put as a down payment. Also taken into consideration are the town property taxes, and their effect on the total monthly mortgage payment.
For years, mainstream banks and financial advisors have been
recommending that you pay extra cash into your mortgage account
in order to cut down the huge interest amount and reduce the
period over which you pay back the loan.
For example, if you borrow $200,000 over 30 years at a rate of
5%, your monthly repayments would be around $1074. Over 30
years, you would actually pay $1074 x 360 (months), which is
$386,640. That's a of $186,640 in interest!
Now if you could find an extra $246 a month, and pay $1320 a
month into your mortgage account, you would cut 10 years off the
repayment period - the loan would be fully paid in only 20 years
instead of 30 years. Moreover, your total payments would be
$316,664 -saving you $69,756! Looks like BIG savings for you
right? Not so fast though...keep reading.
You see, the flaw in this technique is that it ignores the time
value of money.
The banks, mortgage lenders and other financial types know that
money is worth less now than it was when they were younger. Take
that $1074 mortgage repayment for instance, in 30 years time,
when the last payment is due, it would only be worth $437 in
today's money (based on current inflation growth).
A dollar now is always better than a dollar in a year's time or
in 10 years from now.
How does the time value of money affect our example?
You cannot simply subtract the mortgage interest amount for a 20
year mortgage from the interest on a 30 year mortgage. What you
need to do is calculate the Present Value of each mortgage.
The Present Value of a 30 year mortgage with repayments of $1074
at a 5% interest rate is $200,066.
The Present Value of a 20 year mortgage with repayments of $1320
at a 5% interest rate is $200,066.
Thus, the two repayment plans are exactly equal over time.
Much of this $69,756 'saving' on the interest rate is really no
more than the result of you paying the extra $246 a month. That
$246 a month for 20 years totals $59,040.
What if you took that $246 a month and invested it in, for
example, mutual funds?
If you could get a return of 10% each year, after 20 years you
would have $186,804. With inflation at 3%, that would be worth
$102,597 in today's money.
So why would the banks recommend that you pay off your mortgage
quickly? Surely the longer the income stream lasts, the better
right? - wrong.
Banks love being able to prove that their recommendations will
'save you money'. But in reality, and as I stated earlier, the
banks have a very good understanding of the time value of money.
They know the true value of that extra $246 a month that you're
giving them now, and not in the future. And the shorter the time
you take to repay the mortgage, the lower their risk, and the
sooner their money comes back to them to be loaned out again.
There are some arguments for paying your mortgage back quickly -
for one thing, the quicker you pay, the quicker your equity
grows. But you should understand that every dollar you give the
bank now is a dollar that you can't invest.
Giving your money to the bank to avoid paying 5% interest means
that you can't use that money to earn 10% or 12% or 15% interest
somewhere else.
If you're currently following an accelerated payment plan, you
may want to have a family and/or financial advisor pow-wow. This
meeting should focus on whether or not those extra mortgage
dollars can be invested to earn a more positive cash-flow for
you instead of your bank.
About the author:
This article by takes a closer look at the accelerated mortgage
plans that actually benefits the banks, mortgage lenders, and
home loan companies more than the consumer. For more articles
and information about hidden mortgage resources and secrets,
visit Mortgage HotLinkZ http://mortgage.hotlinkz.net
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