Mortgage Payment

This time we will consider two parts of mortgage calculator, the first telling you how much your monthly mortgage payment will be based on your mortgage, term and interest; and the second - indicating the change in the payment system if you wish to make extra mortgage payments, or "prepayments".

First, your total mortgage payment consists of two components: the principal and the interest. The principal is the amount of money you borrow to buy a home; the interest is the cost you pay the bank for borrowing this money. Each month, you need to make a payment towards your loan, which is your mortgage payment. And it is organized so that from the monthly payments you make the majority of the money first covers the interest portion of your mortgage and then, towards the end, you begin to pay off the principal.

So, the first part of this mortgage calculator computes the amount of your payment that goes towards the principal, as well as the amount that goes towards the interest, the sum left on your mortgage (the loan balance) and your equity that you have built.

We need to explain here what equity is. The equity is just the amount of principal you have already paid off. In other words, how much of your home you have bought back from the bank.

The second part of the calculator allows you to look at how things change if you make extra mortgage payments, or "prepayments". You may want to pay your mortgage off earlier than the mortgage loan agreement requires, say, you wish to add to your normal payments some more money every month, once a year or just once. What is nice about the prepayments is that your payments go directly towards the principal, thus lowering the total interest that you pay over time, and increasing the amount of equity that you have built by "buying back" your home. But on the other hand, the bank may impose penalties on you.