A mortgage calculator is one of the simplest tools on any real estate website, and one of the most useful when it is filled in thoughtfully. I often see buyers plug in a list price and call it a day. With a few extra minutes, you can get a far more realistic picture of what a home will cost you each month. Here's how I suggest using one while you shop.
The four numbers every calculator needs
Most mortgage calculators, including the PEI mortgage calculator on my site, ask for some version of these:
- Purchase price. Use a realistic number for the homes you are considering, not just the listing you like best.
- Down payment. How much you will put down, as a dollar amount or a percentage.
- Interest rate. Use the rate your lender or broker has quoted you, not an advertised best-case rate.
- Amortization. The total number of years over which the mortgage is paid off.
Change one number at a time and watch how the payment moves. It's a quick way to understand what really drives your budget.
Run a few scenarios
Rather than one calculation, try three:
- Comfortable: the price range where you would feel relaxed
- Stretch: the top of what you could manage
- Rate bump: your comfortable price with a slightly higher interest rate, to see how much room you have if rates rise at renewal
Seeing those side by side helps you set a price ceiling before emotions get involved at a showing.
Remember what the calculator leaves out
A basic calculator shows principal and interest. Your real monthly cost of owning a home on PEI includes more:
- Property tax. Find the assessment for the homes you are considering and estimate the yearly bill, then divide by twelve.
- Heat and power. Ask the seller for recent bills. Heating type makes a big difference here.
- Home insurance. Get a ballpark from a broker early, especially for older or rural homes.
- Water and sewer, or well and septic upkeep. Town services come with a bill; rural systems come with maintenance.
- Condo fees, if applicable.
- Mortgage default insurance, if your down payment is under 20 percent. This premium is often added to the mortgage, which raises the payment.
Don't forget the one-time costs
Beyond your down payment, you will need money at closing for things like legal fees, inspections and adjustments. My guide to PEI closing costs walks through what to plan for.
If you are buying a newly built home as a first-time buyer, a federal rebate may also affect your numbers. My explainer on the first-time home buyers rebate covers how it works.
Calculator vs. pre-approval
A calculator is a planning tool. A pre-approval is a lender's review of your actual income, debts and credit, and it tells you what they are willing to lend. Federally regulated lenders also check that you could afford payments at a minimum qualifying rate, often called the stress test, which is usually higher than the rate on your contract. That means the amount you qualify for may be lower than a calculator suggests. Use the calculator to explore, then get pre-approved before you start making offers.
Bi-weekly vs. monthly payments
Many calculators let you switch payment frequency. Accelerated bi-weekly payments can shorten your amortization because you make the equivalent of one extra monthly payment each year. Try it in the calculator to see the effect on your total interest.
A simple worksheet
- Mortgage payment (from the calculator)
- + monthly property tax estimate
- + monthly heat and power estimate
- + monthly insurance estimate
- + condo fees or a maintenance allowance
- = your true monthly housing cost
Fixed or variable?
Your calculator results will change depending on the rate type you choose. A fixed rate keeps your payment steady for the term, while a variable rate can move with the market. There is no single right answer. Try both in the calculator using the rates you have actually been quoted, and talk with your lender about how comfortable you are with change in your monthly payment over the term.
Let's put real numbers to it
Once you have a comfortable range, I can show you homes that fit it and help you gather the tax and utility details for each one. Contact Jodi Bernard, CENTURY 21 Northumberland Realty, and let's turn your numbers into a shortlist.
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