Taking out a mortgage to purchase a home is one of the biggest financial decisions most people will make in their lives. Understanding how your mortgage loan factors like interest rate and loan term impact your monthly payments and overall costs is essential. Mortgage loan factor charts are valuable tools to help you easily estimate what your mortgage payments will be so you can budget wisely.
In this comprehensive guide we’ll explain exactly what a mortgage loan factor chart is, the key information it provides and how to use it to calculate your mortgage payments for any loan scenario. With the help of clear examples and tips, you’ll be able to leverage loan factor charts to choose the best mortgage for your needs and budget.
What is a Mortgage Loan Factor Chart?
A mortgage loan factor chart displays multipliers for different combinations of interest rates and loan terms. These multipliers are known as “factors”. By looking up the factor for your particular interest rate and loan term you can easily estimate your monthly principal and interest payments on a mortgage loan.
Factor charts provide payment factors per $1,000 borrowed. To determine your full monthly payment, you simply multiply the factor by the number of thousands of dollars of your actual mortgage loan amount.
For example, say you are taking out a $100,000 30-year fixed rate mortgage at 5% interest. The factor chart shows a payment factor of 5.37 per $1,000 borrowed for a 30-year loan at 5% interest. You would multiply 5.37 by 100 (because your loan is 100 thousand dollars), meaning your estimated principal and interest payment would be $537 per month.
Key Pieces of Information in a Loan Factor Chart
Mortgage loan factor charts provide payment factors for various combinations of:
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Interest rates – Usually shown in intervals of 1/8th or 1/4th of a percent (e.g. 5%, 5.25%, 5.5%).
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Loan terms – Typically 15-year or 30-year terms are shown.
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Payment factors – Multiplier per $1,000 borrowed to estimate principal + interest payments.
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Total interest factors – Multiplier per $1,000 borrowed to estimate total interest paid over life of loan.
Reviewing the factors for different rates and terms allows you to understand the impact each has on your monthly payment and total costs.
How to Use a Mortgage Loan Factor Chart
Follow these simple steps to use a loan factor chart to estimate payments:
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Identify your loan details – Your loan amount, interest rate, and loan term.
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Find factors – Look up the payment factor and total interest factor that matches your loan term and interest rate.
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Multiply – Determine the number of thousands in your loan amount and multiply that by the payment factor to estimate your monthly principal and interest payments.
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Multiply again – Take the number of thousands in your loan amount and multiply by the total interest factor to estimate your total interest costs for the full loan term.
Let’s walk through an example:
- Loan Amount: $150,000
- Interest Rate: 4.5%
- Loan Term: 30 years
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The loan amount is 150 thousand dollars.
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For a 30-year loan at 4.5%, the payment factor is 5.06 and the total interest factor is 1,824.06.
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150 x 5.06 = $759 estimated monthly P&I payment
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150 x 1,824.06 = $273,609 total estimated interest paid over the full 30-year term.
Using this simple process, you can plug in different loan scenarios and instantly see how the numbers change. This allows easy comparison shopping to find your optimal mortgage loan.
Comparing 15 vs. 30 Year Loan Factors
One key benefit of a loan factor chart is the ability to easily compare how a 15-year vs. 30-year loan term impacts your costs:
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The payment factor is higher for a 15-year loan. This means the monthly payment will be higher compared to a 30-year loan for the same loan amount and interest rate.
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However, the total interest factor is lower for a 15-year loan. This indicates you’ll pay less total interest compared to a 30-year loan.
The tradeoff is higher monthly payments over a shorter 15 year term vs. lower payments stretched out over 30 years but with more interest paid. Reviewing the factors helps quantify this tradeoff.
For example, for a $100,000 loan at 4% interest:
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15-year payment factor: 6.90, total interest factor: 1,243.04
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30-year payment factor: 4.21, total interest factor: 1,517.77
This clearly shows the difference in monthly payments but savings on total interest costs with the shorter term.
Finding Reliable Mortgage Loan Factor Charts
When reviewing mortgage loan factor charts, look for ones published by reputable providers, such as:
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Banks or lenders – Large national lenders like Chase or Wells Fargo often provide charts.
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Objective third-party sites – Respected credit and mortgage sites like HSH.com and NerdWallet offer charts and calculators.
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Government agencies – Freddie Mac and Fannie Mae provide reference tables.
The benefit of using charts from reputable published sources is they are more likely to be accurate and regularly updated.
Going Beyond Estimates
While very useful for estimating payments, keep in mind a mortgage loan factor chart has limitations:
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It does not account for taxes, insurance, HOA fees, or other costs factored into your actual mortgage payment.
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It does not reflect real-time daily interest rate fluctuations. Check sites like Bankrate or HSH for current rate data.
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It shows principal and interest only – your actual payment may differ slightly based on how your specific loan is amortized.
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It does not reflect adjustable rate mortgages (ARMs) where rates and payments change over time.
To get a precise tailored quote, you’ll need to apply directly with mortgage lenders. But for initial ballpark estimates, a mortgage loan factor chart is an indispensable tool.
Putting Loan Factor Charts to Work for You
Now that you understand the basics of mortgage loan factor charts, you can start leveraging their usefulness:
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Shop and compare loan offers – Quickly evaluate monthly payments and total interest costs.
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Determine affordable loan amount – Plug in different amounts to see impact on cash flow.
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Consider different terms – Weigh benefits of 15 vs. 30 year loans.
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See impact of interest rates – Estimate costs for hypothetical rate increases or decreases.
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Project future refinance savings – Compare existing factor to potential new loan.
Armed with a mortgage loan factor chart, you can become an informed mortgage shopper and homeowner. Crunch the numbers for your specific situation and unlock the chart’s benefits for smarter borrowing decisions.
Amortizing a Mortgage Faster and Saving Money
In many situations, a borrower may want to pay off a mortgage earlier to save on interest, gain freedom from debt, or other reasons.
However, lengthier loans help to boost the profit of the lending banks. The amortization table shows how a loan can concentrate the larger interest payments towards the beginning of the loan, increasing a banks revenue. Moreover, some loan contracts may not explicitly permit some loan reduction techniques. Thus, a borrower may first need to check with the lending bank to see if utilizing such strategies is allowed.
Nonetheless, assuming a mortgage agreement allows for faster repayment, a borrower can employ the following techniques to reduce mortgage balances more quickly and save money:
Increasing Regular Payments
One way to pay off a mortgage faster is to make small additional payments each month. This technique can save borrowers a considerable amount of money.
For example, a borrower who has a $150,000 mortgage amortized over 25 years at an interest rate of 5.45% can pay it off 2.5 years sooner by paying an extra $50 a month over the life of the mortgage. This would result in a savings of over $14,000.
Accelerating Payments
Most financial institutions offer several payment frequency options besides making one payment per month. Switching to a more frequent mode of payment, such as biweekly payments, has the effect of a borrower making an extra annual payment. This will result in significant savings on a mortgage.
For example, suppose a borrower has a $150,000 mortgage amortized over 25 years with an interest rate of 6.45% repaid in biweekly rather than monthly installments. By paying half of the monthly amount every two weeks, that person can save nearly $30,000 over the life of the loan.
Making Lump Sum Payments or Prepayments
A prepayment is a lump sum payment made in addition to regular mortgage installments. These additional payments reduce the outstanding balance of a mortgage, resulting in a shorter mortgage term. The earlier a borrower makes prepayments, the more it reduces the overall interest paid, typically leading to quicker mortgage repayment.
Nonetheless, borrowers should keep in mind that banks may impose stipulations governing prepayments since they reduce a banks earnings on a given mortgage. These conditions may consist of a penalty for prepayments, a cap on how much borrowers can pay in a lump sum form, or a minimum amount specified for prepayments. If such conditions exist, a bank will usually spell them out in the mortgage agreement.
Refinancing a Mortgage
Refinancing involves replacing an existing mortgage with a new mortgage loan contract. While this usually means a different interest rate and new loan conditions, it also involves a new application, an underwriting process, and a closing, amounting to significant fees and other costs.
Despite these challenges, refinancing can benefit borrowers, but they should weigh the comparison carefully and read any new agreement thoroughly.
How To Calculate Your Mortgage Payment
FAQ
What is a mortgage loan factor?
How much difference does .25 make on a mortgage?
How to use a mortgage factor chart?
How much does 1% affect a mortgage payment?
How do I use the mortgage calculator?
To use the mortgage calculator, click on ‘Compare common loan types’ to view a comparison of different loan terms. You can also click on ‘Amortization’ to see how the principal balance, principal paid (equity), and total interest paid change year by year. On mobile devices, scroll down to see the ‘Amortization’ section.
How is a mortgage loan calculated?
To calculate a mortgage loan, use the formula: M = P [ i (1 + i)^n ] / [(1 + i)^n – 1]. The variables are: P = the principal, or the initial amount you borrowed. i = your monthly interest rate. Your lender likely lists interest rates as an annual figure, so you’ll need to divide by 12, for each month of the year.
How is a mortgage interest rate calculated?
To calculate a mortgage interest rate, you’ll need the following: P = the principal, or the initial amount you borrowed. i = your annual interest rate (your lender lists this figure). To find the monthly interest rate, divide the annual rate by 12 (for each month of the year): i = P.05 / 12 = 0.004167. n = the number of payments over the life of the loan.
How to calculate a monthly mortgage payment?
To calculate a monthly mortgage payment, follow these steps: Step 1: Convert the annual interest rate to a monthly rate by dividing it by 12. Step 2: Multiply the loan amount by the monthly interest rate to get the interest payment. Step 3: Subtract the interest payment from the total monthly payment to determine the principal payment.