When you decide you want to buy a house It isn't always easy to figure out which homes are in your budget. It would be nice if you could eliminate the property that you won't be able to buy anyway.
What would help is if you could somehow calculate your monthly payments be before you approach a lender, that way you'll have some idea what you're getting into. This calculator will give you an estimate of your monthly mortgage payment. This should give you an idea of your price range before you start looking for property.
Easy, right? So, what the heck is it calculating and why didn't we just figure it out ourselves? Well, it turns out that the deceptively simple calculator is packing some pretty complex mathematics. Here's the deal;
Wait! Hold on a sec. According to my calculations, financing is almost as expensive as it is boring. Very interesting, please continue.
While all this seems pretty straightforward, a practical matter arises when the debtor begins making payments.
Initially, the debt is still large, so interest payment is proportionally large.
Near the end of the term, as the debt decreases, the interest payment becomes equally small.
What was needed was a mathematical way to distribute the amount of interest across the term of the loan.
And so began the era of modern mortgage lending.
A fascinating subject that combines economics and mathematics in such a way that somehow becomes even less interesting than the sum of its parts, it truly defies logic.
Hopefully, armed with knowledge you'll be better equipped to hold your own in a negotiation over the terms of your next home loan.