Before signing a mortgage loan contract we all must simulate the amounts that we need to repay every month based on the contract conditions. Nobody should accept to sign a loan contract before doing the financial analysis job to understand the full consequences of the contract he is about to enter into.
I had to take a few such decisions and I wanted to have a tool that help me understand better the risks and the strategies I have to pursue in order to minimize the cost of the loan.
Loan Simulator Mortgage Calculator
The excel file I offer anyone is interested in such impact analysis is very complex and can simulate the modification of reference interest rate every month and also the potential benefits of advance payments.
What you’re buying with a mortgage
The main purpose of a mortgage is to cover the mortgage (the amount borrowed).
The other main purpose of a mortgage is to service the loan (the payment it has been made on) over the term of the mortgage, which can be either a fixed or variable period (get more info here).
Fixed-term loans have a specific interest rate and repayment schedule, which varies according to the terms of the loan and the borrower’s financial situation. If your mortgage is fixed, it will be set for the rest of your life. While most variable-term mortgages are open-ended, which means the interest rate can change depending on the needs of the borrower, you can always choose an interest-only mortgage.
Variable-term A mortgage loan is fixed-term and will have a variable interest rate. With variable-term loans, the interest rate can be set at any time during the loan term.
There are a number of other types of mortgages, which differ in terms of how long the loan will be for and the terms of the payments. For example, variable-rate home loans give you access to interest rates that fluctuate up to 4 percent for up to 75 years.
Types of Mortgage Loans
There are a number of different types of mortgage loans available to you. Let’s take a look at each type of mortgage, so you’ll know what to expect. Interest-Only Mortgage Interest-only mortgage loans are for individuals who do not qualify for traditional mortgages. The interest-only mortgage allows you to pay only the principal balance at the end of the loan term. You must pay off the loan in full before the end of the loan term. As a result, interest is paid on the loan before the term ends. These types of mortgages do not have any payment restrictions. However, they do have annual interest rates that can range from around 2 percent to 5 percent. The amount you pay each month, whether you are paying interest or not, will impact your total payment amount at the end of the loan term. Example: Alice has an interest-only mortgage with a 10-year term. At the end of the loan term, she will pay $13,560. In her first month, she pays $800 ($500 in interest + $300 in fees). In her second month, she pays $1,895 ($1,900 in interest + $600 in fees).
Minimum Payment If your monthly payments do not cover the entire monthly loan payment, you will eventually reach a point when your payments will exceed your income. At this point, you may have to reduce the amount you are paying by a certain amount.