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Home Ownership Preparation :: Simple Interest Loan Calculator
Simple Interest Loan Calculator:
How Simple Loan Calculators Figure Out Your Interest Rate
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A simple interest loan calculator is certainly tempting – just type in a couple of numbers and the calculator returns with an overview of your probable loan interest rate.
Remember though, it’s probable and never set in stone.
Alas, a simple interest loan calculator that you find online may be great at estimating, but it’s not the ideal tool for giving you a complete picture of your loan rate.
However, they can still give you an educated guess, which is great if you’re just shopping or want to do some initial research into various loan products.
To work, a simple interest loan calculator needs the following information:
Your Income
A simple interest loan calculator will typically start by asking you for your annual gross income.
Not only will this information help the calculator figure out how much you can afford, it also helps determine your income to debt ratio.
Normally, the bigger the debt to income ratio, the higher the interest rate.
Your Available Down Payment
The amount of money you put down on your mortgage will directly affect your home loan interest rate. This is because the amount of equity you put into a home is directly related to your risk of default.
A prospective homeowner that puts 15% of a home’s value down with their own money is significantly less likely to walk away or default than the homeowner who has put 0% down on home.
The homeowner with the bigger down payment also doesn’t have to pay private mortgage insurance (PMI).
So, the bigger the down payment, the lower the interest rate.
The Term Length of Your Loan
Another critical aspect for a simple interest loan calculator is the length of your loan term. For example, a 15-year mortgage may offer a different rate than a 25-year mortgage.
Your Type of Loan
The interest rate you will pay is also dependent on the type of mortgage loan that you get. For example, if you’re getting a 30-year fixed rate mortgage, it’s easy to calculate your interest rate.
However, these variables can quickly change if you’re opting for a 15-year adjustable-rate mortgage (ARM). Some interest loan calculators will compare various loan types.
Total Amount Borrowed
The total amount you plan to borrow is another factor in determining your mortgage interest rate. This is because it’s the other side to your debt to income ratio.
For example, a larger mortgage loan means a higher ratio and a higher debt-to-income ratio also means a higher interest rate.
Your Estimated Credit Score
A simple interest loan calculator will usually ask you to estimate your current credit rating (good, excellent, etc).
Unfortunately, most people don’t know and fail to paint an accurate picture. Do yourself a favor and obtain a copy of your credit report before you start this process.
See also:
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Home-Ownership-Preparation.com :: Simple Interest Loan Calculator