Further advanced mortgage calculators incorporate other costs associated with a mortgage, including insurance and such as local/state taxes.
Fixed Rate Mortgage Calculators
Monthly payments for a fixed rate mortgage are the amount paid by the borrower every month that ensures that the loan is paid off in full with interest at the end of its term. With a fixed rate mortgage, the borrower agrees to pay off the loan completely at the end of the loan's term, so the amount owed at month N must be zero.
The fraction of the monthly payment that is applied to principal pay down equals the amount of payment minus the amount of interest currently paid on the pre-existing unpaid principal.
The interest component of the monthly payment, is the interest rate times the amount unpaid at the end of month. Since in the early years of the mortgage the unpaid principal is still large, so are the interest payments on it.
The portion of the monthly payment going toward paying down the principal is very small and equity in the property accumulates very slowly (in the absence of changes in the market value of the property). But in the later years of the mortgage, when the principal has already been substantially paid down and not much monthly interest needs to be paid, most of the monthly payment goes toward repayment of the principal, and the remaining principal declines rapidly.
The borrower's equity in the property equals the current market value of the property minus the amount owed.
Adjustable Rate Mortgage Calculators
Annual percentage rates (APR) calculations for Adjustable Rate Mortgages (ARMs) require many more variables, including: the starting interest rate; the length of time at that rate; the recast; the payment change; the index; the margins; the periodic interest change cap; the payment cap; lifetime cap; the negative amortization cap; and others.¹
In the forthcoming Stem Lending blog posts, we will dive deeper into these steps and the gotchas that you need to watch out for. Please feel free to reach out to [email protected] or instantly apply stemlending.com/apply if you have any questions.
Have a happy home buying experience! – Stem Lending Team