💡 Pro Tip: Even small extra payments make a huge difference. On a $300,000 mortgage, just $100 extra per month saves $51,000 in interest!
Mortgages are long-term loans used to purchase real estate. They typically have the lowest interest rates among consumer loans because they're secured by the property itself. Understanding mortgage calculations is crucial as this is likely the largest financial commitment you'll ever make.
Pro Tip: A 15-year mortgage typically saves over $100,000 in interest compared to a 30-year mortgage on a $300,000 loan, but monthly payments are about 50% higher. Use our calculator to see if you can afford the higher payment.
Auto loans are typically 3-7 year loans used to purchase vehicles. Interest rates vary significantly based on whether you're buying new or used, your credit score, and the loan term. Unlike homes, cars depreciate rapidly, making the loan structure crucial.
Important: Cars lose 20% of value in the first year. A shorter loan term helps you build equity faster and avoid owing more than the car's worth.
Personal loans are unsecured loans that can be used for various purposes: debt consolidation, home improvements, medical expenses, or major purchases. Because they're unsecured, interest rates are higher than mortgages or auto loans but lower than credit cards.
Student loans fund education expenses and come in two main types: federal and private. Federal loans offer fixed rates and flexible repayment options, while private loans may have variable rates but can cover funding gaps.
Understanding how interest compounds on loans is crucial for making informed borrowing decisions. Unlike savings where compound interest works in your favor, with loans it works against you. Every month, you pay interest on the remaining principal balance.
Amortization is the process of gradually paying off your loan. In the early years, most of your payment goes to interest because the principal balance is highest. This is why extra payments early in the loan term have such a dramatic impact on total interest paid.
Choosing between fixed and variable rates is one of the most important decisions when taking out a loan:
Your credit score is the single most important factor in determining your interest rate. The difference between excellent credit (750+) and fair credit (650) can mean paying tens of thousands more in interest over the life of a mortgage.
A larger down payment reduces your loan amount, often qualifies you for better rates, and can eliminate costly insurance requirements. For mortgages, 20% down eliminates PMI (saving $100-300/month). For auto loans, 20% down prevents being "underwater" on the loan.
Shorter terms have higher monthly payments but save massive amounts in interest. Use our calculator to find the sweet spot between affordable monthly payments and minimal total interest. A 15-year mortgage typically saves over $100,000 compared to a 30-year on a $300,000 loan.
Never accept the first offer. Get quotes from at least 5 lenders including banks, credit unions, and online lenders. Use competing offers to negotiate better terms. Even 0.25% lower rate saves thousands over the loan life.
Any extra payment goes directly to principal, saving compound interest. Options include biweekly payments (makes 13 yearly payments instead of 12), rounding up payments, or applying windfalls like tax refunds. Use our calculator's extra payment feature to see your potential savings.
If rates drop 0.75% or more below your current rate, calculate if refinancing saves money. Divide closing costs by monthly savings to find your break-even point. If you'll keep the loan longer than break-even, refinancing likely makes sense.
Lenders evaluate your application using the "5 C's of Credit": Character (credit history), Capacity (ability to repay), Capital (down payment), Collateral (asset value), and Conditions (loan purpose and economy). Understanding these helps you prepare a stronger application.
*Most lenders require 620+ for VA loans
Your DTI is your monthly debt payments divided by gross monthly income. Most lenders prefer DTI below 43% for mortgages, though some programs allow up to 50%. Lower DTI often means better rates and higher approval chances.
Example: $2,000 monthly debts ÷ $6,000 gross income = 33% DTI
Being prepared with documentation speeds up approval and shows lenders you're serious. Have these ready before applying:
The average borrower who shops for mortgages saves $1,500 over the loan life. Those who get 5+ quotes save $3,000 on average.
Dealers love extending loan terms to lower payments, but you pay much more interest. Always check total cost, not just monthly payment.
Just because you qualify doesn't mean you should borrow the max. Leave room for emergencies, maintenance, and life changes.
25% of credit reports contain errors. Not checking and fixing errors before applying can cost you thousands in higher rates.
Don't buy furniture, cars, or open new credit until after closing. These can change your DTI and derail approval.
Prepayment penalties, balloon payments, and variable rate caps hide in fine print. Always read and understand all terms.
Pre-approval shows sellers you're serious and reveals any issues early. It's different from pre-qualification and much more valuable.
Using a credit card for large purchases instead of a personal loan, or getting an ARM when you need payment stability.
Loans have additional costs: origination fees, insurance, taxes, maintenance. Budget for all costs, not just principal and interest.
Falling in love with a house or car beyond your budget leads to financial stress. Set a budget beforehand and stick to it.
PMI protects lenders when down payment is less than 20%. It typically costs 0.5-1% of loan amount annually ($125-250/month on a $300,000 loan). PMI can be removed once you reach 20% equity. FHA loans require mortgage insurance regardless of down payment, removable only through refinancing.
Consider refinancing when rates drop 0.75% or more below your current rate. Calculate break-even by dividing closing costs by monthly savings. Also consider refinancing to remove PMI, switch from ARM to fixed-rate, or tap home equity.
Monthly Payment = P[r(1+r)^n]/[(1+r)^n-1], where P is principal, r is monthly interest rate (annual rate/12), and n is number of payments. Our calculator handles this math instantly and shows you the complete amortization schedule.
Most loans allow early payoff without penalty. Check your loan terms for prepayment penalties. Federal student loans and most mortgages have no prepayment penalties. Some personal loans and auto loans may charge fees for early payoff.
Late payments typically incur fees and damage your credit score. Most loans have a 15-day grace period before late fees apply. After 30 days, it's reported to credit bureaus. Contact your lender immediately if you're struggling - they may offer forbearance or modification options.