How to get the best mortgage

Understanding the home loan application process can help you get the best mortgage rate and lowest fees at closing.

Follow this checklist as you shop for a home loan.

• Check your credit reports from all three of the major credit-reporting bureaus and fix any errors or outdated information. Borrowers with good credit scores qualify for more home loans and better mortgage rates.
•  Get pre-approved for a mortgage by disclosing your income, savings and outstanding debt and having a lender check your credit report and credit score. It’s typically free, and if you qualify, a lender will supply a letter that states how much can be loaned.
• Apply for an FHA loan if you don’t meet the qualifying standards for a conventional home loan.
• Hunt down the lowest mortgage rate. Use a database that aggregates the best mortgage rates, and get an understanding of the cost of home loans.
• Factor in all of the costs of homeownership when you budget for your monthly mortgage payment. As a homeowner, you will owe property taxes, homeowners insurance premiums, utility bills, maintenance costs and perhaps HOA fees. A mortgage calculator can be of help in determining a monthly payment you can afford based on your income and other expenses.
• Ask the seller to pay some of the closing fees for you, or negotiate with the lender to reduce the expenses such as origination fees, settlement charges and administrative fees.
• Use a mortgage calculator to determine if you should pay off points to lower your rate or use that money to make a larger down payment.

How to use a mortgage calculator

An online mortgage calculator can quickly and easily predict both your mortgage payment and amortization schedule. All you’ll need to get an accurate account is the following information:

1. Mortgage amount.

If you're looking to buy a new home a mortgage calculator is a good way to estimate how much home you can afford. To get this number simply enter the amount of the house you’re considering buying, minus any down payment you may be planning on making. If you're refinancing an existing home loan, this number will be the outstanding balance on your mortgage.

2. Mortgage term.

This is the length of the loan you're considering. Many young or first time homeowners go with a standard 30 year loan but there are other terms readily available. There are both longer and shorter term mortgages available from various lenders. Home loans can range from as short as 5 years to some as long as 40 years or more. 

3. Interest rate.

Interest rates can vary from person to person either because of their own personal credit history or from geographic area to geographic area. You can get a projected rate by researching the mortgage rate tables for the area where you’ve been house hunting.

4. Mortgage start date.

If you're buying a home or refinancing soon, this should be the date you plan on closing. But if you're trying to get more information on a mortgage you already have, set the date to your original closing date.

Once you’ve entered these four pieces of information into the calculator it can instantly display a hypothetical mortgage payment for the situation you’ve entered. By changing key information, such as the length of the loan or slight changes to the interest rate, you can see how small changes can effect what you ultimately pay for your home. Wondering what you'll owe on your mortgage in July 2019? Curious how much you home will ultimately cost you once all the interest has been taken into account? By clicking the “Show/Recalculate Amortization Schedule” you can find out.

Because the mortgage calculator also offers the ability to enter any extra payments you may make on your loan it can also show you how much you can cut down on the amount of interest you pay or how to reduce the length of your loan.

3 situations that benefit by using a mortgage calculator

A mortgage calculator is typically used to calculate payments for a new mortgage, but it can also be used for several other common calculations. Consider these three other mortgage calculator uses.

Considering an adjustable-rate-mortgage

An adjustable-rate-mortgage, or simply ARM, is enticing due to its lower initial interest rate, but don’t be wooed until you plug it in to a mortgage calculator. Enter the ARM interest rate into Bankrate’s mortgage calculator with a 30-year term. Compare those payments to the conventional 30-year fixed mortgage payments. You’ll either be delighted about the possible benefits of an ARM – or pleased to step away from the risky venture despite the potential advantages.

Saying “bye” to private mortgage insurance

When you have 20 percent equity in your home, you can request that the lender waive the private mortgage insurance obligation. Using the mortgage calculator, you can see when you’ll reach this magic number.

Enter the closing date and original amount of your home mortgage and select “show/recalculate amortization schedule.” Multiply your original mortgage by 0.8 and find the closest matching number in the amortization schedule’s far-right column. This is approximately when you’ll have 20 percent equity in your home.

Paying off your mortgage early

Bankrate’s mortgage calculator allows you to enter amounts for “extra payments,” which can shorten your term and save you money. To avoid being the typical 30-year-fixed-rate mortgage holder, whose total interest payments are usually larger than the original principal on the loan, calculate potential savings using the calculator. Enter an extra payment goal in one of the boxes and click “show/recalculate amortization schedule” to see the difference. You could knock off years of your term and save significant amounts of money.

Pay off early with a mortgage calculator

A 30 year fixed rate mortgage may keep monthly payments significantly lower than a 15 year, but the interest can pile up quickly. At the end of a 30 year mortgage, the interest payments can end up being more than the original loan principal. By making extra payments, a homeowner can shorten the term and save a good deal of money. A mortgage calculator can help compute how much extra a homeowner needs to pay to save big.

How to use the mortgage calculator

Find a calculator to fit your needs. Bankrate.com offers a calculator that has an “extra payments” feature. Input the mortgage amount, the term and the interest rate of the current mortgage. Then hit “calculate” to see your monthly payments. Underneath “extra payments,” enter either a monthly, yearly or one-time payment. Click on “show/recalculate amortization table”, and check the amortization table to figure out how much can be saved. Play around with the payments to find the best extra payment for the budget.

Refinance instead

Those looking to save more can also find out how much refinancing can save them with a refinancing mortgage calculator. The calculator compares the current mortgage to the new one. It also takes other fees into account and computes a new monthly payment, monthly savings and the difference in interest. It then provides the total cost and the months required to recoup it.