How to Use the Mortgage Calculator

Our mortgage calculator is designed to give you a clear picture of your potential monthly housing costs. To get started, simply fill in the fields on the left-hand side. The calculator will automatically update the results on the right as you type.

1. Home price: Enter the total purchase price of the property you're considering.
2. Property tax: Input your estimated annual property tax. You can provide this as a flat dollar amount or as a percentage of the home's value by using the toggle switch.
3. Loan term: Select the duration of your mortgage from the dropdown menu. Common options like 15, 20, and 30 years are available.
4. Interest rate: Enter the annual interest rate for your loan.

The calculator automatically factors in a standard 20% down payment to determine your loan amount and includes an estimated monthly cost for homeowner's insurance (calculated at 0.5% of the home's value annually). Your results are displayed in two tabs. The Payment breakdown tab shows your total estimated monthly payment, visualized in a chart that separates principal and interest, property taxes, and insurance. For a long-term view, click the Amortization tab to see a year-by-year schedule of your payments, interest paid, and remaining loan balance.

What costs are typically associated with a Mortgage?

When you take out a mortgage, your financial obligations extend far beyond simply repaying the amount you borrowed. In addition to the principal and interest, there are numerous other costs associated with taking out a mortgage, covering both the loan and the home purchase itself.

• Principal: This is the original amount of money you borrow from the lender to purchase your home. It represents the core loan balance that you are required to pay back over time.
• Interest: This is the primary cost of borrowing money, calculated as a percentage of your outstanding loan balance. It's the fee the lender charges for the use of their funds and is paid as part of your monthly mortgage payment.
• Origination and Lender Charges: These are fees charged by the lender for processing and underwriting your loan application. They cover the administrative costs of creating the mortgage and can be itemized under various names like application or processing fees.
• Points: Also known as discount points, this is an optional, upfront fee you can pay to the lender in exchange for a lower interest rate on your loan. Each point is typically calculated as a percentage of the total loan amount.
• Third-Party Closing Costs: These are charges for services provided by entities other than your lender, which are necessary to finalize the mortgage. Common examples include fees for appraisals to determine the home's value and title insurance to protect against ownership claims.
• Government Fees: These are costs required by local government entities in connection with your real estate transaction or mortgage. These fees generally do not vary from one lender to another.
• Prepaid Expenses and Deposits: These are upfront payments for homeownership costs, such as the first year's homeowner's insurance premium and initial deposits into an escrow account. You may also have to pay prepaid interest, which covers the interest due between your closing date and the end of that month.
• Mortgage Insurance: This is an additional cost of borrowing that protects the lender if you default on your loan. It is typically required for borrowers who make a down payment of less than 20% of the home's purchase price.
• Property Taxes and Homeowners’ Insurance: While these are costs of homeownership rather than borrowing, they are often bundled into your monthly mortgage payment. Your lender typically collects these funds and holds them in an escrow account to pay the bills on your behalf.
• Condominium or Homeowner’s Association Dues: If you purchase a property in a condominium or a planned community, you may be required to pay these additional fees. These dues are usually paid separately from your monthly mortgage payment to the association.

Mortgage Calculator Formula

The monthly payment for a fixed-rate mortgage is determined using the following amortization formula:

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]

• M: This represents your total monthly mortgage payment.
• P: This is the principal loan amount, which is the total sum of money you borrowed.
• i: This is your monthly interest rate, calculated by dividing your annual interest rate by 12.
• n: This is the total number of payments over the lifetime of the loan (e.g., 360 for a 30-year mortgage).

While the formula shows how payments are derived, a mortgage calculator is a valuable tool that performs this complex math for you, delivering quick and error-free results.

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Deciding How Much House You Can Afford

A reliable starting point is the 28/36 rule. Financial advisors often suggest capping housing costs at 28% of your monthly take-home pay. Your total debt, including the mortgage and other loans, should ideally stay below 36% of your income, providing a solid foundation for your budget.

Lenders scrutinize your debt-to-income (DTI) ratio, which pits your monthly debt against your gross income. A lower DTI improves your loan prospects. Your credit score and down payment size are also crucial, directly impacting how much you can borrow and at what interest rate.

Remember to budget for the full cost of ownership, not just the mortgage. Factor in property taxes, insurance, maintenance, and potential HOA dues. Keeping an emergency fund for unexpected repairs is also critical to avoid becoming house-poor and ensure long-term financial stability.

How To Lower Your Mortgage Payments

Even if refinancing isn't a viable option, you may have more control over your housing costs than you realize, and several strategies are available to lower your monthly mortgage payment.

• Recast your mortgage: This involves making a significant lump-sum payment toward your principal balance, after which your lender re-amortizes the loan over the remaining term. The result is a lower monthly payment, and it's a simpler process than refinancing that allows you to keep your current interest rate.
• Cancel Private Mortgage Insurance (PMI): If you put down less than 20% on your home, you can request to have PMI removed once you reach 20% equity in your property. Eliminating this monthly premium directly reduces your total payment and can save you a significant amount of money.
• Shop for cheaper homeowners insurance: Your insurance premium is typically paid through an escrow account, but you have the right to switch providers at any time. By comparing quotes and finding a more affordable policy, you can lower the escrow portion of your mortgage payment.
• Ask for a loan modification: For homeowners experiencing financial hardship, a loan modification permanently changes the terms of your mortgage to make payments more affordable. This could involve extending your loan's term or lowering the interest rate to help you avoid foreclosure.

A Quick Guide to Mortgages

Once you have an estimate from the mortgage calculator, you're ready to move forward. Here’s a step-by-step guide to navigate the path from calculation to closing day.

1. Review your finances: Take a hard look at your budget to confirm you can handle not just the monthly mortgage payment, but also the upfront costs like a down payment and closing fees. Don't forget ongoing expenses such as property taxes, insurance, utilities, and maintenance.
2. Check your credit: Pull your credit report and score. Dispute any inaccuracies and, if necessary, take steps to improve your score. A higher score can unlock better interest rates and more lender options.
3. Decide on a loan and lender: Research different mortgage types, including conventional and government-backed loans (FHA, VA, USDA), to see which fits your situation. Shop around and compare lenders based on their rates, terms, and customer service.
4. Get preapproved: Submit your financial documents to a lender to get a preapproval letter. This letter estimates how much you can borrow and shows sellers and real estate agents that you are a serious buyer.
5. Start touring homes: With a preapproval in hand and a clear budget, you can begin working with a real estate agent to find and tour homes that meet your needs.
6. Make an offer: When you find the right house, you’ll work with your agent to determine a fair price, set any necessary contingencies, and submit a formal offer.
7. Apply for the mortgage: Once your offer is accepted, you'll officially apply for your loan by providing all the required documentation for the underwriting process.
8. Close on your new home: This is the final step. You'll review and sign all the final paperwork, pay your closing costs, and receive the keys to your new home.

Check out our other calculators including a Budget Calculator, Auto Loan Calculator, Auto Lease Calculator, and Early Payoff Calculator.

Frequently asked questions