How can I compare loan terms with a mortgage calculator?

basics

The loan term is the number of years that you have the loan.

Most loans require you to repay the loan over the life of the loan.

Some loans allow you to pay a smaller amount for an initial period, e.g.

Loans where the principal is not repaid are often balloon payment loans where the principal is due at the end of the loan’s term.

A shorter loan term results in a higher monthly payment, but fewer payments over the life of the loan than a similar loan amount with a longer term. A 15-year $400,000 loan at 5.5% interest has a monthly payment of $3,268, while the same $400,000 loan at 5.5% interest with a 50-year term has a monthly payment of $1,959.

As you can see, the payment difference between both options is over $1,000 per month. And that, although both loans have the same interest rate and the same amount.

Many mortgage banks offer loans with the following conditions:

  • 15 years
  • 20 years
  • 30 years
  • 40 years
  • 45 years
  • 50 years

You can compare the same loan and interest rate with different terms to see how much payment you are happy with.

There are many free mortgage calculators available online to help you.