The mortgage calculator on this page will help you figure out how much you can afford to spend on a home based on various interest rates and loan types.
The reports produced by this mortgage calculator also reveal how much interest you’ll pay over the life of the loan, and how much you can reduce that if you prepay principal one time or every month. You can also see how long it will take to pay off your home loan. And, the estimated amortization schedule will show you the remaining principal balance at any point in time.
This versatile, user-friendly mortgage calculator will help you plan ahead and make smart decisions regarding your home loan options for your current and future living situations.
Table of Contents
How to Calculate Mortgage Payments
Your monthly mortgage payment consists of at least four components – principal, interest, property taxes, and homeowners’ insurance. Depending on the situation, you may also have to pay for mortgage insurance. This usually kicks in if your down payment comes in under 20% of the total purchase price.
Our mortgage calculator focuses on the first two – principal and interest – which make up the majority of your monthly payment. Since taxes and home insurance vary widely by location, you would need to find out what those would be and just add them to whatever monthly payment figure the calculator produces.
Start using the mortgage calculator right away if you’re already comfortable with real estate finance.
If you need a little more guidance, keep reading and we’ll introduce you to the key terms of mortgage calculation, and explain how to input relevant information into the calculator.
How to Use the Mortgage Calculator
Let’s walk through the steps first. After that, if you need more explanation, we’ve included additional information.
Step 1: Enter the Mortgage Amount
If your home costs $400,000, and you make a $50,000 down payment, then your mortgage would be $350,000. The mortgage amount is the loan given to you by the bank. It is not total purchase price, unless you put $0 down, which is extremely rare and usually not advised.
Step 2: Choose a Loan Term
The most common home loan term is 30 years. But you can also get loans that last for 20 years, 15 years, and even 10 years. Typically, the shorter the term, the lower the interest rate, but the higher the monthly payment because you have fewer months to pay off the principal and interest.
Step 3: Estimate Your Interest Rate
Any loan officer will tell you that you won’t really know the interest rate until you lock it in, which doesn’t happen until you’re well into the process. For this mortgage calculator, you need to make your best guess based on the interest rates other people are currently getting. Check the news. Ask your real estate agent, or talk to friends and neighbors who recently moved or refinanced.
Step 4: See Your Monthly Payment
With those three items entered, the mortgage calculator will produce your estimated monthly payment – just principal plus interest. Remember, you need to find out your insurance and taxes and add them on for an amount closer to what you would actually pay each month.
Step 5: Select Your Amortization Report Breakdown
What is amortization? It is the schedule that maps out over the life of the loan how much principal and interest you will pay each month.
When you first begin paying on your loan, the great majority of your monthly payment goes to interest. Over time, the percentage going to interest declines, and the percentage going toward the principal increases. By the end of your loan term, almost all the monthly payment goes to the principal. The amortization schedule shows you how these two amounts change over the life of your loan.
For this mortgage calculator, you can select whether to view this report with monthly data, or annual data.
To see your amortization data, click the ‘View Report’ button at the top of the mortgage calculator.
Step 6: See the Effect of Prepaying on Your Loan
Click the dropdown item below the first section of the mortgage calculator, and you can enter prepayment information. You can see what happens with a one-time prepayment, an annual prepayment, or prepaying every month.
What is prepayment? It means you choose to pay more than your monthly payment. Why do this? Because all the additional payment goes to the principal. Do this enough, and it can greatly reduce the total interest amount you will pay over the life of the loan. It can help you pay off the loan sooner.
Play around with some numbers in the mortgage calculator. See what happens with just $100 extra prepayment every month.
If you can afford it, prepaying on a loan is a great strategy to cut long term expenses.
Typical Costs Included in a Mortgage Payment
Let’s briefly look at the five possible costs that add up to your monthly mortgage payment.
Principal is what you owe from the actual purchase price of the home. If you buy a home for $500,000 and put 20% down, then you still owe $400,000. That amount is your principal, and it goes down every month with each new payment.
Interest adds on additional cost to your home loan. It’s how the bank makes money. Mortgage interest is a percentage and gets calculated as a total amount over the life of the loan. It can be a bit hard to grasp this type of interest, because it isn’t just the percentage multiplied by the principal. A 5% interest rate on a $400,000 loan will cost you far more than $20,000 (which is 5% of $400k).
But the basic idea is, the higher the interest rate, the more you have to pay each month. This is why, when interest rates go down, many homeowners will ‘refinance’ their mortgages. This means they essentially get a new loan for the home they already own, but with a lower interest rate. This lowers their monthly payments.
Every city, county, and state may charge various property tax rates, and these can go up or down based on what governments and voters decide to do each election. They also depend on the assessed value of your home. Higher assessed value means higher property taxes.
Estimating this prior to purchasing a home can be difficult. Talk to your real estate agent or loan officer for help, or search online for insights into local rates. This is why our mortgage calculator does not include property taxes.
Homeowners insurance covers damages to your home that you would otherwise struggle to pay for yourself. This isn’t for things like a broken window. But trees falling on your roof, a car crashing into your wall, earthquakes and floods – the costs from these sorts of things can be covered with homeowners insurance.
Again, what you’ll pay for insurance will be different for every home, in every location, and depending on the type of coverage you want. For instance, you might have to pay extra for earthquake or flood insurance as part of your homeowners policy. That raises your costs. But if those natural disasters are more common where you live, it might be a smart move.
Mortgage insurance is insurance for the bank, not for you. If you as the homeowner for some reason fail to pay for your mortgage and go into default, the mortgage insurance helps the bank protect itself from losses. So it’s an added cost for you that benefits the bank.
The way to avoid mortgage insurance is to pay a large enough down payment to assure the bank that you are likely to be faithful paying your monthly payments on the loan they give you. The typical percentage is to make at least a 20% down payment. Sometimes, you can get away with a lower amount and still avoid mortgage insurance, and your loan officer may be able to help show you a few options for how to do that. But that’s only if you’re close to 20%. If you’re only paying 5%, then mortgage insurance will be part of your monthly payment until you pay off enough principal.
Mortgage Payment Formula
The formula for calculating a mortgage payment was mentioned earlier, but here it is again with math symbols:
Principal + Mortgage Interest + Property Taxes + Home Insurance + Mortgage Insurance = Your Payment
Because interest and the amortization schedule can be quite challenging for most people to work with, a mortgage calculator makes it much easier to see the numbers you need to help make informed decisions.
How a Mortgage Calculator Can Help
What are some of the decisions a mortgage calculator can quickly help inform you about? Here are a few scenarios:
The Loan Length That’s Right for You
Paying off your home loan sooner can save you tons of money on interest. One way to do that is to consider a shorter loan term, like 15 or 20 years. The flip side of that is that your monthly payment will be higher.
Generally, this is advisable only in situations where you have great confidence you can make the higher payments. With a 30 year loan, you’ll have lower payments each month, but you’ll pay more interest money over the long term.
Shorter loan term plus higher monthly payments vs longer loan term plus lower monthly payments. That’s the choice you have to make.
Again, most people opt for the 30 year loan. One reason is because, even with the longer loan, you still retain the option of prepaying additional principal, and the effect is comparable to getting a shorter loan term. But then you have the option of stopping your prepayments if your financial situation changes, such as a job loss.
The mortgage calculator shows you the different monthly costs for different loan lengths.
If an ARM Is a Good Option
An ARM is an adjustable rate mortgage. These will usually be presented as something like a 5/1 ARM or a 7/1 ARM. That means the interest rate will not change for the first five or seven years of your loan. But after that, it will adjust to whatever the current market interest rate is, and then do so again every year thereafter.
When is an ARM a good option? When interest rates are high, sometimes an ARM makes sense because the bank will tend to offer a slightly lower rate for the first set of years. And if rates are high now, there’s a stronger chance they will go down in the future, rather than go even higher. If that happens, your loan might suddenly cost you much less each month after five years (or seven, whatever the length of the ARM) have passed.
If interest rates are really low, an ARM isn’t a good option because rates will either stay low, or go up. So you’ll either keep paying what you’re paying now, or you’ll pay more.
An ARM is a bit of a gamble, but if rates are pretty high now, it might be a reasonably smart one.
Suppose interest rates are high right now, such as 7%. If your loan officer offers you a 6.5% rate with a 5/1 ARM, that might be a good option. The mortgage calculator will show you how much money you would save those first five years, with the lower monthly payments you’d be paying.
If You’re Spending More than You Can Afford
You know your monthly income. If you’re bringing in a net income of $5000 per month as a household, it’s probably not a good idea to get a mortgage that costs $3000 per month. The general recommendation is to keep your housing costs at least under 40% of your net income, preferably under 30%. In that scenario, that would mean looking for monthly payments under $2000 (0.4 x 5000).
The mortgage calculator will show you what kind of monthly payment you can expect for various home loans you are considering. Just remember to add on estimates for property taxes and insurance, which are not part of the calculator for reasons already given.
How Much to Put Down
Your down payment plays a big role in all this too. Suppose you can’t afford more than $2000 per month in monthly mortgage payments, but the home you want at current interest rates would cost you $2200.
That’s close enough that you should be able to get it under the $2000 goal with a little creativity. One way might be to increase your down payment. Pushing that up from 10% to 20% can make a huge difference, for two reasons.
First, it lowers the size of the loan, and thus lowers the monthly payment and the interest that you’ll be charged. Second, it eliminates the mortgage insurance requirement. For someone in our scenario, those two changes would very likely get their monthly payment under $2000.
Our mortgage calculator lets you enter whatever loan amount you want. If you know the house you want and know the purchase price, try inputting various loan amounts based on different down payments until you reach a monthly payment you are happy with.
Deciding How Much House You Can Afford
How much can you really afford to pay for a house? It’s a much more complicated question than it seems. The vast majority of people buy homes that are worth far more than they make in annual income. This is possible because your home loan costs get spread out over many years, usually 30.
The mortgage calculator helps you figure out what you will actually pay each month, for any home, and at any interest rate. Let’s look at a few ways you can lower your monthly payments.
How to Lower Your Monthly Mortgage Payment
Here are five ways to lower your monthly payment. You can explore all these using the mortgage calculator.
Choose a Longer Loan
Longer home loans cost less money per month. You will pay more actual dollars if you live there long enough, but most people don’t live in the same home 30 years anyway, so for many, this ends up not mattering. Thus, with a longer loan you pay less each month to live where you want to live.
Spend Less on the Home
In some parts of the country this is easier said than done. Nevertheless, if you have a loan amount you do not want to exceed, then do your best to stick to your commitment. Don’t go looking at homes above your price range “just to take a look.” Stick to your budget, and don’t overspend on homes with stuff you don’t need.
PMI is mortgage insurance, which we’ve discussed previously. Do everything you can to pay a large enough down payment so you can avoid the added monthly charge of mortgage insurance.
Shop for a Lower Interest Rate
Not all loan officers are created equal. Some of them are terrible, and some are superb. There are vast differences in skill, willingness to go to bat for you, and customer service. So don’t take the first offer you get and presume it’s the best you can get.
If you think your first quoted interest rate is too high, and your loan officer acts like they can’t do anything to change it, go find someone else and see if you can find a lower rate and a loan officer who will find ways to get your rate down.
Make a Bigger Down Payment
This doesn’t just have the effect of eliminating mortgage insurance. The more you pay up front, the lower the overall size of the home loan will be. That means smaller monthly payments, no matter what interest rate you end up with. The math here is pretty simple. $300,000 spread out over 30 years will cost less than $400,000.
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