How to Use Our Mortgage Calculator
Your dream house may turn into a nightmare if your mortgage payment doesn’t quite fit your budget. Whether you want to buy or refinance a home, our mortgage calculator takes the guesswork out of estimating how much you will pay each month. Here is how it works:
- Enter a home price. You can experiment with this number to see how much house you can afford.
- Input a down payment. Add the down payment you expect to make either as a dollar amount or percentage of the home price.
- Choose a loan term. A 30-year fixed-rate mortgage is a popular choice among homebuyers because it allows you to split a lower monthly payment over a longer period of time. That said, a shorter repayment term, such as a 15-year or 10-year mortgage, will cost you less in interest charges over the life of the home loan.
- Estimate your interest rate. Research mortgage rates to get a better idea of the current rate environment. Your interest rate will depend on the type of loan you have, such as FHA or conventional, as well as the repayment length, the loan amount, the loan-to-value ratio and your creditworthiness.
- Add taxes, insurance and homeowners association fees. This part is optional but can give you a more accurate calculation. Ask your real estate agent or check your local property assessor’s website if you don’t have this information.
- View your payment details. After you enter your information into the fields on the left, the calculator will automatically populate your payment information at right. Here you can view your estimated monthly payment and loan payoff date. You will also see a breakdown of your estimated monthly payment, including how much will go toward principal and interest.
Play around with the figures. If you’re looking to keep your mortgage payment below a certain dollar amount, you can change the loan terms. For example, finding a home at a lower purchase price or coming prepared with a larger down payment can help you lower your monthly payment.
How Is a Mortgage Payment Calculated?
Depending on your situation, your monthly mortgage payment may include:
- Principal. This is the amount of money you borrowed from the lender to buy your house. A portion of your monthly payment goes toward repaying the principal balance of your loan, which lowers your debt amount.
- Interest. Interest payments go directly to the lender, and they won’t lower your principal amount. Your mortgage rate determines how much money you’re paying the lender to finance your loan.
- Property tax. Property taxes are typically paid annually or biannually, but they can be rolled into your monthly payments through an escrow account. The amount you pay in property taxes may increase over time if your local tax rate increases or your assessed property value rises.
- Homeowners insurance. This type of insurance provides financial protection in a disaster or accident involving your home. Your monthly mortgage payment will usually include a portion of your biannual or annual insurance premium that goes into an escrow account, and your lender pays your insurance when it’s due.
- Private mortgage insurance. PMI protects the lender if you stop making payments on your loan. It’s required for a conventional loan with a down payment of less than 20% of the home’s purchase price – or equity of less than 20% of the value of your home for a conventional loan refinance.
Equation for Mortgage Payments
If you prefer to run the numbers yourself, you can use the equation below to determine your potential principal and interest payment. You can also use the =PMT function in Excel to calculate monthly mortgage payments using your own financial spreadsheet.
SYMBOL KEY
- M: Monthly payment. This is for the principal and interest payments only; it doesn’t include private mortgage insurance or escrows like homeowners insurance, property taxes and homeowners association fees.
- P: Principal loan amount. This is the total mortgage amount being borrowed, which is the home price minus the down payment. For example, on a $400,000 home with 20% down, the loan amount is $320,000.
- r: Rate. The mortgage interest rate is paid annually, so divide the rate by 12 to get the monthly rate. For example, a 6% rate would be 0.5% (formatted as 0.005).
- n: Number of payments. You can take the loan term in years and multiply it by 12 to get this number. For example, there are 360 monthly payments on a 30-year mortgage.
How Much House Can I Afford?
A mortgage calculator can give you an idea of how much house you can buy. You will also need to look at certain factors to decide whether a home could be within your financial reach.
Assess your monthly earnings, cash reserves and expenses as well as your credit profile, which helps show what your mortgage interest rate could be.
Lenders suggest using a percentage of your income as a guideline for how much house you can afford. The 28/36 rule states that you should spend no more than 28% of your gross monthly income on housing expenses and no more than 36% on total debts.
Our calculator allows you to tinker with the numbers to figure out what’s comfortable and avoid financial stress. Also, whatever you can do to improve your credit before you shop for homes and lenders will help. The higher your credit score, the lower your interest rate and the more affordable your monthly payments will be.