Tools are only useful if you know how to use them. Today on the Pineywoods Mortgage blog, we’re going to teach you how to use a useful tool for estimating your mortgage rate — the mortgage calculator!

So you’re in the market for a new home. As you’ve been browsing the websites of various lenders, chances are you’ve noticed a mortgage calculator offered on at least a site or two. We offer one of our own for the Tampa home market if you’ve yet to visit our main website. But what exactly is this tool, and how does one use it?

A mortgage calculator is an automated tool that gives you the ability to more accurately estimate the financial implications of changing one or more of the variables in a mortgage financing arrangement with a lender. Home loan applicants can use mortgage calculators to manipulate the terms of a potential mortgage agreement with a lender to determine how their monthly payment would likely be affected, and mortgage brokers like Pineywoods Mortgage in Tampa use mortgage calculators to determine the financial suitability of a home loan applicant.

Different lenders’ calculators offer different variable terms in an agreement for manipulation, and those terms can include anything from the interest rate to the local and state taxes associated with the mortgage, in more complex mortgage calculators. On Pineywoods Mortgage’s calculator, you can manipulate the hypothetical purchase price of your home, the length of your mortgage term, and your interest rate.

You can also elect to include the estimated annual cost of private mortgage insurance, though that estimate is not automatically included in our mortgage calculator’s calculations, as not all of our home loan applicants need private mortgage insurance to purchase their home. Instead, you can manually select the cost of private mortgage insurance to be included in calculations, at which point our calculator will estimate the cost of the private mortgage insurance for you and include in its calculations.

But how does an online calculator provide a reliable estimate from only basic information? Mortgage calculators are complicated algorithms that most lenders must have coded into their websites as a usable tool. Not all lenders are willing to put in the investment for this tool, but lenders like Pineywoods Mortgage know just how useful mortgage calculators can be to first-time home buyers. We’re in the business of helping people acquire their dream homes, and we’ll do whatever we can to help you make that a financial reality.

The algorithms mortgage calculators use to provide you estimates on the financial implications of your mortgage terms are based on the annuity formula, which is pictured below. To put it simply (without going into the math), this is the formula that is used to calculate the amount of annuity payments, which are series of payments made in regular intervals as part of a financial agreement. Monthly home mortgage payments, insurance payments, and pension payments are all examples of common annuities.

The algorithms used by mortgage calculators can be even further complicated if the calculator offers the ability to estimate the financial implications of an adjustable-rate mortgage, but for brevity’s sake, we won’t begin to explain how. The only thing that’s important to keep in mind when using our mortgage calculator, or that of another lender, is that mortgage calculators provide estimated, not, definite terms. Mortgage calculators are a great starting point for getting a rough idea of how what kind of mortgages you can afford and what price range of homes are financially feasible for you, but you should always make an appointment with your lender at Pineywoods when you’re serious about purchasing a home in the Tampa area.

It’s also wise when using a mortgage calculator to consider the financial factors that they cannot account for in their estimate. Mortgage calculators are powerful tools, but their mathematical magic is pretty much limited to the terms of your hypothetical mortgage agreement. To do proper financial due diligence, you’ll want to include factors like closing costs, furnishing your home, moving your possessions to your new home (if applicable), the first month’s utilities payments, and more into your budgeting to get the most accurate view of your financial situation before pursuing a home loan. Many first-time home buyers forget to account for these crucial financial factors and can put themselves in an uncomfortable bind as a result of doing so. It’s one of many common mistakes first-time home buyers make, which you can learn more about in our previous blog.

If you’re ready to get started financing the home of your dreams, check out our mortgage calculator or schedule a consultation at Pineywoods Mortgage today!