Home loans are long-term loans taken from lenders, with the land as a collateral for the loan. Such long-term loans, usually for 15 or 30 years are paid off in monthly payments that take care of principal amount and the interest. These mortgages are also backed by private mortgage insurance (PMI). The repayment formula for these loans can be worked out with the help of online loan amortization calculators. They help you spread the interest on the mortgage loan over many payments so that the loan becomes affordable.
Loan Amortization Calculator
Home loan amortization refers to a systemic payment plan to ensure that your home loan gets paid off within a specified period of time. Home loans are amortized loans since they are to be paid off by a specified date over equal monthly installments. Auto loans fall into this category too. The term 'amortization' indicates gradual extinguishments or shrinkage of loan amount.
There are many online loan amortization calculators available that can help you weigh the various alternatives on your loan and chalk out the payments accordingly. You need to type in the mortgage amount, interest rate and the term of the home loan. The online home loan amortization calculator gives you an amortization table that tells you how much of your loan is getting paid off. It will help you understand how your mortgage loan is getting paid. The breakdown of the monthly payments changes over the life of the loan. Initially, the bulk of the payment goes towards payment of the interest on the mortgage and a small amount pays of the principal. The ratio improves over time and then bulk of the monthly payment pays of the principal and the smaller component pays off the reducing interest.
Negative loan amortization
Negative loan amortization happens when the loan balance is increasing instead of showing a decreasing trend. This typically happens when the monthly payment on the mortgage is not sufficient to cover the principal payment as well as the interest on the home loan. It leads to a situation when you need to increase the monthly payments so as to repay the larger loan over a shorter period. You need to tackle negative loan amortization with refinancing if the rates have no increased substantially.
Home loan calculator
Home loan calculators are available aplenty on the Net. You can find the basic loan payment calculators where you can enter the number of payments you wish to make. The calculator of the home loan payments will work out monthly amounts for you. This offers ease in trying out various combinations to the payment period. Some of the more advanced home loan calculator programs allow you to determine the debt-to-income ratios as well as different payment scenarios. Advantages of using online loan amortization calculators and home loan calculators:
- You can find out how much you can borrow
- It allows you to decide how much you should put down
- You can calculate your tax savings
- You can make decisions about opting for fixed or adjustable rate mortgages
Use variations of the basic home loan calculator to decide whether to consolidate your debt with a home equity loan or a second mortgage. You can calculate how long it will take you to break even on the closing costs. You can work out the impact of early payments on your home loan. If you want to work out your tax and investment plans, you need to determine the capital gains as well. Some of the home loan calculators can aid this process.
Note: APR - annual percentage rate is the interest rate you will pay calculated on a yearly basis. But the way APR is calculated may differ from one lender to the other. Many credit companies include fees like loan application / loan processing fee,document preparation fee and insurance fee as part of APR while others may not include them. The values calculated here may differ owing to the way APR is calculated and hence this calculator should be used only for an approximate rough estimate only.