Mortgage calculator

Automated financial tool

Mortgage calculators are automated tools that enable users to determine the financial implications of changes in one or more variables in a mortgage financing arrangement. Mortgage calculators are used by consumers to determine monthly repayments, and by mortgage providers to determine the financial suitability of a home loan applicant. Mortgage calculators are frequently on for profit websites, though the Consumer Financial Protection Bureau has launched its own public mortgage calculator. The major variables in a mortgage calculation include loan principal, balance, periodic compound interest rate, number of payments per year, total number of payments and the regular payment amount. More complex calculators can take into account other costs associated with a mortgage, such as local and state taxes, and insurance. Mortgage calculation capabilities can be found on financial handheld calculators such as the HP 12C or Texas Instruments TI BA II Plus. There are also multiple free online free mortgage calculators, and software programs offering financial and mortgage calculations.

While adjustable rate mortgages have been around for decades, from 2002 through 2005 adjustable rate mortgages became more complicated as did the calculations involved. Lending became much more creative which complicated the calculations. Subprime lending and creative loans such as the “pick a payment”, “pay option”, and “hybrid” loans brought on a new era of mortgage calculations. The more creative adjustable mortgages meant some changes in the calculations to specifically handle these complicated loans. To calculate the annual percentage rates (APR) many more variables needed to be added, including: the starting interest rate; the length of time at that rate; the recast; the payment change; the index; the margins; the periodic interest change cap; the payment cap; lifetime cap; the negative amortization cap; and others. Many lenders created their own software programs, and World Savings even had contracted special calculators to be made by Calculated Industries specifically for their “pick a payment” program. However, by the late 2000s the Great Recession brought an end to many of the creative “pick a payment” type of loans which left many borrowers with higher loan balances over time, and owing more than their houses were worth. This also helped reduce the more complicated calculations that went along with these mortgages.

In the United Kingdom, the FCA Financial Conduct Authority (formerly the FSA Financial Services Authority) regulates loans secured on residential property. It does not prescribe any specific calculation method. However, it does prescribe that, for comparative purposes, lenders must display an Annual Percentage Rate as prominently as they display other rates. In Spain, the regulatory authority (Banco de España) has issued and enforced some good practices, such as clearly advertising the Annual Percentage Rate and stating how and when payments change in variable rate mortgages.