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How is a mortgage calculated?
Here s what you need to know in order to calculate your monthly payment on a mortgage without the Texas Mortgage Calculator. First, you need to find out the principal amount. The principal is the amount you are borrowing or the amount that you still owe on a loan. This amount is separate from interest. In addition to the principal you will also need to know the interest rate. These rates can be either fixed, adjustable, or variable depending upon the nature of the loan. A fixed interest rate does not change for the duration of the mortgage. This can be advantageous to the borrower when you anticipate interest rates to increase. An adjustable rate mortgage has a varying interest rate that changes according to a predetermined benchmark. It is common to have a fixed rate for a given period of time. After this period it is common to have rates that vary on a monthly basis. Variable rate mortgages are similar to adjustable rates in that they change based on a given index or underlying benchmark rate. This type of interest rate is advantageous to the borrower if they anticipate that interest rates will decrease over time. You must also know the number of monthly payments you plan to make. We will refer to the monthly payment as M , the principal amount as P , the interest rate as i , and the number of monthly payments as n . Once you have determined this, the monthly payment is calculated with the following formula: M = P[i(1+i)^n]/[(1+i)^n -1]
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When does it make sense to refinance?
Usually people refinance to save money, either by obtaining a lower interest rate or by reducing the term of the loan. Refinancing is also a way to convert an adjustable loan to a fixed loan or to consolidate debts. The decision to refinance can be difficult, since there are several reasons to refinance. However, if you are looking to save money, try this calculation:
a. Calculate the total cost of the refinance
b. Calculate the monthly savings
c. Divide the total cost of the refinance
(#1) by the monthly savings (#2). This is the break even time. If you own the house longer than this, you will save money by refinancing.