Dave Taylor: Calculating mortgage payments online?
Q: My dad told me that if I refinance my house and lower my interest rate by 2%, I can save a little on the monthly loan payment. I’m skeptical. Is there a mortgage calculator I can use online to see how the interest rate affects payments?
A: As a father, it gives me great joy to say that your father is right! In fact, it’s surprising how much a single point on a long-term loan can make a difference in both payments and the overall amount paid to the lender.
For example, if you were about to buy a new home in Boulder and needed to borrow $500,000 to complete the sale, your monthly payments on a 30-year fixed loan at 6.5% would be $3,160. . Calculate that and you’ll pay the bank $3,160 a month for 30 years, which equals $1.13 million.
I calculate all of these values the same way you should: Google “mortgage calculator” and you’ll find a handy calculator – preloaded with the prime rate as the default interest rate – in the middle of this page. No need to visit a site or sign up for a service.
Using this online calculator, we can see that even a 0.5% drop in the interest rate drops payments from $3,160 to $2,998. Reduce that by 2%, as your dad suggests, and it drops to $2,533, a savings of $627 per month. More importantly, over the term of the loan, you will save over $225,000.
So yes, these interest rates can have a significant effect on your payments and the overall cost of the loan. This is also true if it’s something shorter, like a typical car loan, as you can also check with an online calculator.
For reasons I can’t explain, you’ll need to use a third-party calculator for this task: neither Google nor Bing think the “Car Loan Calculator” is good enough to offer a similar simplified tool.
I suggest calculator.net which has lots of simple tools and is not tied to any bank or lending company (so you won’t be overwhelmed with car loan offers later on). Using this tool, you can quickly see that a loan of €30,000 over 5 years at 4.5% will have monthly payments of €372. What if this interest rate rose to 6.5%? The payment jumps up to $489 per month. Auto loans aren’t immune to the rather surprising impact that a small swing in interest rates can have on your overall financing.
Before we wrap up, a handy tip: Search Google or Bing for “calculator” and you’ll see a scientific calculator, ready to solve cosines, square roots, factorials and more. Why it doesn’t let you switch to a ‘financial’ calculator is weird, but remember you can search for ‘mortgage calculator’ to find it instead.
TL; DR? Your dad is right.