Use our pre authorized mortgage calculator to quickly estimate your potential monthly mortgage payments. Understanding these costs is the crucial first step in your pre-approval process and securing your financial future.
Pre-Authorized Mortgage Payment Calculator
Pre-Authorized Mortgage Calculator Formula:
The calculation is based on the standard amortization formula:
$$M = P \left[ \frac{i (1 + i)^n}{(1 + i)^n – 1} \right]$$
Where:
- $M$ = Monthly Payment
- $P$ = Principal Mortgage Amount
- $i$ = Monthly Interest Rate (Annual Rate / 1200)
- $n$ = Total Number of Payments (Amortization Period in Years × 12)
Variables Explained:
- Mortgage Amount (P): The total amount you are borrowing from the lender. This is the principal loan amount.
- Annual Interest Rate (R): The yearly rate of interest charged on the mortgage balance. This is crucial for determining costs.
- Amortization Period (T): The total length of time (in years) required to pay off the mortgage, typically 15, 20, or 30 years.
Related Calculators:
- Mortgage Affordability Tool
- Refinance Break-Even Calculator
- Loan Prepayment Impact
- Property Tax Estimator
What is a Pre-Authorized Mortgage Calculator?
While the term “pre authorized mortgage calculator” is often used to refer to a simple payment estimator, its primary function is to help prospective homeowners prepare for the pre-approval phase. By calculating the monthly payment based on hypothetical loan amounts, interest rates, and repayment terms, you gain clarity on your required budget. This estimate is vital for setting realistic expectations before you speak with a lender.
The calculated monthly payment includes both principal repayment and interest charges. The longer the amortization period, the lower your monthly payment will be, but the greater the total interest you will pay over the life of the loan. This calculator allows you to easily run scenarios to find the perfect balance between cash flow and long-term cost.
How to Calculate Pre-Authorized Mortgage Payments (Example):
Let’s use an example with $400,000 principal, a 6.0% rate, and a 25-year amortization.
- Determine Monthly Rate (i): Divide the annual rate by 1200: $6.0 / 1200 = 0.005$.
- Determine Total Payments (n): Multiply the years by 12: $25 \times 12 = 300$ payments.
- Calculate Power Factor: Calculate $(1 + i)^n$: $(1 + 0.005)^{300} \approx 4.4677$.
- Apply Formula: Plug values into the amortization formula: $M = 400,000 \times \left[ \frac{0.005 \times 4.4677}{4.4677 – 1} \right]$.
- Find Monthly Payment (M): The resulting monthly payment is approximately $2,576.49$.
Frequently Asked Questions (FAQ):
Is the result from this calculator my final mortgage payment?
No. This calculator provides an accurate estimate of the Principal and Interest (P&I) portion. Your final payment will include additional items like property taxes, homeowner’s insurance, and potentially Private Mortgage Insurance (PMI), which are not included here.
What is the difference between Amortization and Term?
Amortization is the total time it takes to pay off the loan (e.g., 25 years). The Term is the length of time your current mortgage contract and interest rate are locked in (e.g., 5 years). After the Term expires, you must renew the mortgage at the prevailing rate.
Does a longer Amortization Period save me money?
No. A longer amortization period (e.g., 30 years vs. 15 years) reduces your monthly payment, improving cash flow. However, because you are paying interest for a longer time, the total interest paid over the life of the loan is significantly higher.
What is “Pre-Authorized” in this context?
The term “pre-authorized” in this context refers to preparing the financial estimates necessary for a mortgage pre-approval. It implies calculating the payment that you can afford to authorize for monthly deduction.