Your estimated mortgage life insurance coverage needed is:
Understanding Mortgage Life Insurance Needs
Mortgage life insurance is designed to cover your outstanding mortgage balance in the event of your death. This ensures your family or loved ones are not burdened with mortgage payments and can continue living in their home without financial strain. Calculating the appropriate coverage amount is crucial to ensure adequate protection.
How the Calculator Works
This calculator estimates the total amount of principal you will still owe on your mortgage over a specified period. As you pay down your mortgage, the outstanding balance decreases. Therefore, the amount of life insurance needed to cover the mortgage also decreases over time. This calculator aims to project the remaining mortgage balance at the end of your desired coverage term.
The calculation involves determining your monthly mortgage payment first, then projecting the remaining balance of your loan after a specified number of years. The formula used is based on the standard amortization schedule calculation:
Monthly Mortgage Payment (P&I) Formula:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
M = Your total monthly mortgage payment (Principal and Interest)
P = The principal loan amount (the amount you borrowed)
i = Your monthly interest rate (annual interest rate divided by 12)
n = The total number of payments over the loan's lifetime (loan term in years multiplied by 12)
Remaining Loan Balance Formula:
Once the monthly payment (M) is calculated, the remaining balance after 'k' payments can be estimated using:
B = P(1 + i)^k - M [ ((1 + i)^k - 1) / i ]
Where:
B = The remaining balance after 'k' payments
P = The principal loan amount
i = Your monthly interest rate
k = The number of payments made (coverage term in years multiplied by 12)
M = Your total monthly mortgage payment (Principal and Interest)
This calculator simplifies this by directly calculating the remaining balance at the end of the specified Coverage Term, assuming the loan starts from day one.
Key Inputs Explained:
Mortgage Loan Amount: The total amount borrowed for your home.
Annual Interest Rate (%): The yearly interest rate on your mortgage.
Loan Term (Years): The full duration of your mortgage (e.g., 15, 30 years).
Desired Coverage Term (Years): The period for which you want your mortgage to be covered by life insurance. This is often less than the full loan term.
Why Use This Calculator?
This tool helps you avoid over-insuring or under-insuring your mortgage. By projecting the declining balance, you can obtain a more accurate life insurance policy that reflects your actual needs over the chosen coverage period. This can lead to significant savings on premiums over time, as you're not paying for coverage you won't need in the later years of your mortgage.
Disclaimer: This calculator provides an estimate for informational purposes only. Actual insurance needs may vary based on policy terms, additional fees (like PMI, taxes, and homeowners insurance escrowed into your mortgage payment), and individual financial circumstances. Consult with a qualified insurance professional and financial advisor for personalized advice.
function calculateMortgageLifeInsurance() {
var loanAmount = parseFloat(document.getElementById('loanAmount').value);
var annualInterestRate = parseFloat(document.getElementById('interestRate').value);
var loanTermYears = parseFloat(document.getElementById('loanTerm').value);
var coverageTermYears = parseFloat(document.getElementById('coverageTerm').value);
// Clear previous results
document.getElementById('result').innerHTML = 'Your estimated mortgage life insurance coverage needed is: ';
// Validate inputs
if (isNaN(loanAmount) || loanAmount <= 0 ||
isNaN(annualInterestRate) || annualInterestRate < 0 ||
isNaN(loanTermYears) || loanTermYears <= 0 ||
isNaN(coverageTermYears) || coverageTermYears loanTermYears) {
alert('Coverage Term cannot be greater than the Loan Term.');
return;
}
var monthlyInterestRate = annualInterestRate / 100 / 12;
var numberOfPaymentsTotal = loanTermYears * 12;
var numberOfPaymentsMade = coverageTermYears * 12;
var monthlyPayment;
var remainingBalance;
// Calculate monthly payment if the rate is not zero to avoid division by zero
if (monthlyInterestRate === 0) {
monthlyPayment = loanAmount / numberOfPaymentsTotal;
// For 0 interest, remaining balance is straightforward
remainingBalance = loanAmount - (monthlyPayment * numberOfPaymentsMade);
if (remainingBalance < 0) remainingBalance = 0; // Balance cannot be negative
} else {
// Calculate monthly payment (M)
var numerator = monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPaymentsTotal);
var denominator = Math.pow(1 + monthlyInterestRate, numberOfPaymentsTotal) - 1;
monthlyPayment = loanAmount * (numerator / denominator);
// Calculate remaining balance (B) after 'numberOfPaymentsMade' payments
var term1 = Math.pow(1 + monthlyInterestRate, numberOfPaymentsMade);
var term2 = (term1 - 1) / monthlyInterestRate;
remainingBalance = loanAmount * term1 - monthlyPayment * term2;
// Ensure remaining balance is not negative due to floating point inaccuracies or very long terms
if (remainingBalance < 0) {
remainingBalance = 0;
}
}
// Format the result to two decimal places and add currency symbol
var formattedResult = remainingBalance.toLocaleString(undefined, {
minimumFractionDigits: 2,
maximumFractionDigits: 2
});
document.getElementById('result').innerHTML = 'Your estimated mortgage life insurance coverage needed is: $' + formattedResult + '';
}