When looking for a loan calculator check the site you visit to see what else it offers with the loan calculator. Most sites simply provide a list of the loan calculators offered and leave you to guess which might be the most appropriate and then to input the data required to calculate repayments. Better sites will provide you with a brief explanation of the functions of each loan calculator and may prompt you with some questions, the answers to which can have a significant impact on your monthly mortgage repayments. As an example a client of mine recently checked out a number of sites and found one or two that actually provided detailed explanations of the different data sought and the reasons why it was required. The search for a loan calculator not only resulted in her learning quite a lot about different mortgage terms but also gave her a clearer idea on how she would need to manage her cash flow if she were to proceed with her planned property purchase.
One site she visited provided her with the standard repayment loan calculator as well as a comparison loan calculator, which enabled her to check the rates of her preferred lender with those of another one that had been recommended to her. Another loan calculator prompted her to consider a 100% offset loan. She had not heard of 100% offset loans but a brief explanation of the product and how it worked was provided and she decided to compare a standard mortgage with one that also offered a 100% offset.
Using the loan calculator she entered the loan amount ($250,000) and interest rates – 7.95% p.a. for both mortgages. She then included an amount of $20,000 which she had available to put into in an “offset account". At the time the $20,000 was in a savings account with her Credit Union earning her around 3.5% p.a. and the interest she earned on it was taxable as income. Under the proposed 100% offset mortgage, by shifting the $20,000 to an offset account she could obtain the same interest rate of 7.95% p.a. that she was paying on her mortgage, on the deposited funds. Furthermore because of tax concessions available with this sort of structure she was not taxed on the interest. While the interest rates on both loans were the same, the loan calculator clearly demonstrated the much better cash flow position that resulted with the 100% offset mortgage facility.
Her standard interest only monthly repayment on $250,000 @ 7.95% was $1656.25 or $19,875 per annum.
Put simply; under a 100% offset account the monthly interest is calculated against the outstanding loan balance under the mortgage less the amount deposited in the offset account. In this example $250,000 less $20,000 = $230,000 @ 7.95% = $1523.75 per month or $18,285 p.a. Monthly saving under the offset loan = $132.25 or $1590 per annum.
My client paid $18,285 annual interest on her loan of $250,000, which reflected an interest rate of 7.32% p.a. - quite a significant improvement on the standard rate of 7.95% p.a.
You can learn a lot when looking for a loan calculator particularly if you visit sites that not only offer loan calculators but also give you an on-the-spot education about a variety of mortgages available.
One of the most useful tools is a loan calculator. As a general rule a loan calculator is very user friendly. Establishing your borrowing capacity can be approached in a number of ways and is a relatively quick and simple process . For example, in Australia a loan calculator will allow you to enter your net income and your current liabilities such as a car loan or credit card debt and will then quickly give you an idea as to the amount you can borrow. The loan calculator will also advise your monthly instalment amount and give you the total amount of interest you will pay over the loan term (this can be a bit frightening but can also act as a good motivator for you to make as many extra repayments as possible on your mortgage!)
A good loan calculator will represent the payments you make in graph form as well.
Another feature of a loan calculator could be a comparison calculation whereby you enter your existing bank’s rate and term into the loan calculator together with the rates and term of any proposed new lender. The loan calculator will show you the amount of interest you will pay under each loan – again a graph is often provided. This type of comparison loan calculator is quite sophisticated in that it has provision for a number of variables. For example you may compare your existing loan which may have an initial fixed rate term for 3 years @ 8.20% reverting to a 7.75% variable rate at the end of that 3 year period with a proposed loan which may have an initial 5 year fixed period @ 7.95% reverting to a 7.65% variable rate for the remainder loan term. The loan calculator will calculate the fixed interest payable for the first 3 or 5 years plus the interest for the remaining term at the variable rate and give you the total interest amount that you will pay for the full loan term on each mortgage. The loan calculator will again summarise this in graph form and advise the amount you will save or lose by staying with your existing lender.
If you are reasonably confident of your borrowing capacity you can cross check by using a loan calculator and simply entering the amount you wish to borrow. The loan calculator will then determine your monthly repayment amount. You can then determine yourself whether you have the capacity to service the loan taking into account your net take home pay and after allowing for your living expenses and repayments on any other liabilities.
Although a loan calculator can give you a guide to your borrowing capacity there are other things that a lender will take into consideration when you apply for a loan. For example the number of dependent children you have will impact on your borrowing capacity.
In Australia, a loan calculator is a good resource and you should certainly check them out to be confident that you are on the right track in relation to your estimates on borrowing capacity.
Vicky Edema has sinced written about articles on various topics from Debts Loans, Mortgage and Finances. Vicky Edema has been the Managing Director of Austral Corporation since 1992, the company provides an easy to use