When you’re considering a home purchase, the mortgage that you take out is often one of the most important elements of the deal. After all, just a quarter-point change in the interest rate can end up saving you enough money to buy a fairly nice car over the life of the loan, even though it subtracts less than $100 from your monthly payment. There are so many points to consider when you’re shopping mortgages that having a comparison calculator like this can make the choice easier.
Mortgage Comparison Calculations
So how does it work? First of all, figure out how much you are actually going to be borrowing. You might think that with a purchase price of, say, $500,000 and a down payment of $100,000 that you’re just going to be borrowing $400,000. That’s not quite how it works. Different banks have different fee structures for everything from title insurance policy costs to appraisal fees to loan origination costs. They also can have different pricing policies for points discounted over the life of the mortgage. So at one bank you might be borrowing $402,000, and at another you might be borrowing $408,000. That doesn’t seem like a huge difference given the size of the purchase, but $6,000 is a lot of money — and it costs you more than $6,000 to borrow it.
Then there’s the choice of amortization period. Obviously, if you pay out a loan over 20 years instead of 15, your monthly payments will be smaller. However, they will add up to more over time, because you’re paying to borrow money for a longer time period. There’s also the consideration of prepayment privileges. Some banks will let you pay as much as 20 percent of the original principal each year — on top of your monthly payments — without any penalty. Other banks limit it to 10 percent. If you think you can pay even more than the cap on the prepayment privilege, consider getting an open mortgage that allows full prepayment without penalty. The interest rates are higher, but you will have the note paid off a lot sooner, saving you over time. The mortgage comparison calculator allows you to put the same mortgage in under both open and closed scenarios so you can figure out what makes sense for you financially.
For most people, their home is the biggest investment they ever make — and their mortgage is the biggest financial outlay to which they commit. Tools like this mortgage comparison calculator help you ensure that you get the very best deal.