Our mortgage and loan calculator is a valuable tool designed to assist you in determining your monthly payments and schedule. Utilizing detailed tables and graphs, it provides a comprehensive overview of your financial commitments.
What Is A Mortgage?
A mortgage is essentially a loan obtained to finance the purchase of your home, often representing the largest debt you’ll undertake in your lifetime. After purchasing your home, it serves as collateral, and you, as the homeowner, enter into a legal contract committing to repay the debt. This debt includes interest and additional costs, typically spanning a period of 15 to 30 years.
The lender retains the right to reclaim and sell your home to cover any unpaid debt. Repayment involves making monthly payments encompassing principal, interest, taxes, and insurance (known as PITI).
- Principal: The total amount borrowed to buy the home. A down payment can be made to reduce the principal.
- Interest: The percentage charged by the lender for using the borrowed money.
The principal and interest constitute the majority of monthly payments in a process known as amortization. Amortization gradually reduces your debt over time, with early payments primarily covering interest and later payments contributing more to the principal.
Taxes & Insurance:
Beyond interest and principal, your mortgage payment may include funds deposited into an escrow or trust account. This money is designated for insurance and taxes.
- Taxes: Property taxes imposed by your community based on your property’s value, contributing to community expenses such as schools, infrastructure, and roads.
- Insurance: Home insurance is essential for home purchase, covering both the property and personal belongings against various losses like theft, fire, and weather-related damage.
An escrow account is commonly used when the down payment is less than 20% of the principal, as it is considered a riskier loan. In such cases, the lender establishes an escrow account to collect additional expenses, which are then factored into your monthly mortgage payment.