Real estate calculators provide you with a table showing the breakdown of your monthly payments. A percentage will go to interest and the remainder will be put to the principal balance, or the original amount of the loan. The table shows that in the beginning of your repayment schedule, most of your monthly payment is paid to interest and a lesser amount to principal. Year by year the amount paid to interest will lessen until almost all of the payment is of your principal balance. It is important to understand how interest and your interest rate will effect your loan and a real estate calculator will help you gain a realistic perspective.
Adding an extra yearly payment can shorten your mortgage term up to ten years. Extra payments can also significantly lower your interest payments. A real estate calculator can give an estimate on the savings extra yearly payments will create, helping you decide whether or not such payments would be worthwhile. However, it is possible that your mortgage may have prepayment penalties that will cause you to be fined if your mortgage is repaid early. If you think extra yearly payments would be beneficial, contact your lender to make sure there are no prepayment penalties or to add extra payments into your mortgage plan.
A real estate calculator gives helpful information on several elements of your
- the effect of a shorter or longer loan term
- the impact of the interest rate on your loan
- the benefit of extra yearly payment
- whether or not an increased down payment will be necessary
Using a real estate calculator will help you avoid negative amortization. Although uncommon, negative amortization is sometimes practiced by unethical lenders. Amortization is the repayment of a debt by making regulated installments. If your monthly payment is set too low to pay off your accruing interest, your debt does not decrease. Instead, it increases as your repayment period moves along. If your mortgage has negative amortization, as you pay more, you will owe more. Negative amortization is not likely to happen, but it could cause you to default on your loan, damaging your credit and possibly causing you to lose your home. A real estate calculator can be used to make sure that this does not occur with your mortgage.