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How to Use Mortgage Calculators

March 25, 2020

Whether you're new to Canada or a local looking to buy your first home, mortgages can be complicated.

Luckily there are mortgage calculators can help you compare mortgage rates to determine which option is best for you. Let's go over some common mortgage calculators that can help you evaluate whether you can afford that new house. 

Mortgage Payment Calculator

A mortgage payment calculator can help you determine whether you can make the monthly payments to buy a new home. 

You'll often need to enter the following information: 

  • Home price
  • Down payment
  • Loan term
  • Interest payment

After supplying these figures, the mortgage payment calculator will determine your monthly payment. Many calculators break down the amount into estimates for principal and interest, property tax, and home insurance. You can also add expected homeowner's association fees to get your all-in monthly cost. 

Mortgage Affordability Calculator

A mortgage affordability calculator can help determine whether a house or apartment fits within your budget. Many financial professionals suggest you shouldn't spend more than 28% of your gross income on rent or mortgages. Spending more might get you a nicer home, but it can put you at risk if you experience financial difficulties. 

Affordability calculators start by asking the following information regarding gross income: 

  • Wages
  • Interest and dividends 
  • Alimony received
  • Other income

Next, you supply information regarding the new home, such as:

  • Home price
  • Down payment
  • Loan term
  • Interest payment
  • Real estate taxes
  • Homeowner's insurance 

Finally, you tally up your other debt expenses: 

  • Car payments
  • Alimony payments
  • Credit card debt

As a general rule, you shouldn't spend more than 36% of your gross income on debt, which is why these calculators ask you for your other debt expenses.  

Rent vs Buy Calculators

Rent versus buy calculators determine whether it's better for you to remain a tenant or if it makes economic sense for you to buy your first home. These calculators ask several questions to help understand your current financial situation. 

Common questions include:

  • How much savings do you have?
  • How much debt do you have?
  • What is your credit score?
  • What percentage down payment could you make using savings?
  • Are home prices rising or falling where you're planning on living?

There are many pros and cons to renting or buying. For example, renting enables allows you to be geographically flexible. Plus, the landlord takes care of repairs. On the other hand, buying allows you to build equity and take advantage of tax breaks. You also get the satisfaction of being a homeowner and you can fully customize your house. 

Mortgage Term Calculators

Mortgage term calculators help you decide which mortgage term is right for you. You'll enter information such as:

  • The mortgage loan amount
  • Interest rates for different mortgage terms
  • Years until you plan to retire

These calculators may also ask you questions regarding your current savings, your monthly budget, and your risk tolerance. Longer mortgages allow you to pay smaller amounts each month, but you end up paying more interest over the life of the loan. 

Overall, mortgage calculators are tools that can help you in your home buying journey. Use them to understand how much house you can afford.

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