## Understanding mortgage calculations

### Wolfram|Alpha can perform useful computations related to common mortgage types.

In a fixed-rate mortgage, the interest rate remains the same over the life of the loan; in an adjustable-rate mortgage, the interest rate is typically fixed for some period of time, but then may fluctuate in response to changing market indices that influence interest rates. Several different types (5/1, 1/1, 3/1, 7/1) of adjustable-rate mortgages and rate cap structures (5/2/5, 2/2/6, 2/2/5) are available to choose from.

The simplest mortgage calculation requires only a total loan amount, a loan period and the annual percentage rate of interest on the loan. From these variables, Wolfram|Alpha can compute monthly payments, total interest charges and breakdowns of payments against the principal loan amount and interest over the life of the mortgage. By adjusting loan amounts and interest rates as well as different down payment amounts, you can determine the size of mortgage you might be able to afford and calculate recurring costs over time.

Mortgage computations can also include additional features and variables. Points (also called discount points or mortgage points) are a way for borrowers to reduce the overall interest rate by making an up-front payment; one point equals one percent of the loan amount. A balloon payment represents a balance due at the end of the loan term. An interest-only period is a term during which all payments are counted against interest on the loan.