How to Use a Loan Comparison Mortgage Calculator

Assessing loan packages side-by-side is probably the most valuable way to use online mortgage calculators. It's really the only way to get a clear apples-to-apples comparison.

Looking for something different? We've probably got you covered. Use our quick mortgage calculator guide to find the right tool for you.

Comparing two fixed rate mortgages is hard enough, what with interest rates, points, closing costs, tax deductions, and lenders fees, but when you throw an ARM into the mix it can get even trickier. These mortgage calculators help you find the bottom line.

Click here to use a comparison calculator.

Basic loan comparison mortgage calculators

Loan comparison mortgage calculators ask for basic loan information, including down payment, loan term, interest rate, points, and associated fees (like closing costs and lending fees).

If one or both of the loans you're comparing is an ARM, you also need to know the re-pricing interval (how often the rate changes), re-pricing adjustment (by how much the rate can change each interval), and the lifetime rate cap (how high the interest rate can ever go) on each adjustable-rate product.

But that's not all. Because mortgage interest is tax deductible, tax savings should be taken into consideration in order to get a true picture of a loan's cost. So mortgage calculators may give you the option of entering your tax rate.

In return, the home loan calculator gives you a comparison on monthly payments, the costs of points and fees, the loans' total costs, and after-tax savings. Nifty, huh?

However, you need to keep in mind that these mortgage calculators proceed from two assumptions: one, that you're choosing between two mortgages that you intend to keep for their full term. And two, that an ARM always adjusts to it's highest possible rate over any given interval.

Of course, neither of these may be the case. In which case you've got a faulty comparison on your hands.
But don't worry! We've got a way to get around that up our sleeve.

Mortgage calculators and ARMs

The problem with using mortgage calculators to compare loans, particularly ARMs, is that they always assume that you'll keep the loan for its entire term. Most home buyers don't do this.

In fact, the average American household moves every 8 years. That's a lot of mortgages not held to term. This fact can really affect the actual expense of most mortgages.

For example, if you buy an FRM and end up moving soon, you are really paying for interest that you never "use".

It's even worse with an ARM. Most mortgage calculators usually assume an adjustable rate keeps adjusting to it's ceiling. This gives an accurate picture of the worst-case scenario. But if you have, say, a 5-year hybrid ARM (first 5 years fixed, adjustable rate for the remaining 25) and move or refinance after the first 5 years, you save a lot of money. Particularly as the initial fixed rate on a hybrid ARM is usually quite low.

Using several mortgage calculators for comparison

If you know that you'll be refinancing or moving again in the near future (within the next ten years), it can help to compare loans using several different mortgage calculators.

We always recommend using the comparison mortgage calculators described above, because that is the best way to understand the long-term costs of the mortgage you're signing on to. (And after all, you may not end up moving or refinancing.)

But assuming a move or refinance, here's how to get a better picture of a mortgages's short-term costs.

Try comparing loans using our balloon mortgage loan. This calculator lets you set the financing costs on a mortgage that's amortized over 30 years, but paid off in much less time. Try it now, or read more about the balloon mortgage calculator here.

More mortgage payment calculator tips

This mortgage payment calculator is intended for estimation purposes. Don't budget too tightly and be sure and leave some wiggle room on loan amount and interest rate, especially if you haven't already been approved.

Consider applying for preapproval before you plan to closely. That way you can nail down an interest rate and use the mortgage payment calculator to design your loan around it.

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