This mortgage calculator computes the monthly repayment as well as the interest and amortization of a mortgage loan. It can also estimate the total cost of owning a home by including the property tax, insurance, HOA fee, and other related costs. The calculator allows you to input amounts in either dollar amounts or in the form of a percentage; just click the $ or % sign next to the input field to switch between the two. This calculator can also compare two different loans for the same house with different terms, interest rates, or down payments. To use this calculator, please provide the relevant values, switch on/off the feature s, and click the "Calculate" button.
What is a Mortgage?
A mortgage is a loan used to purchase real estate, like land, a house, or even an apartment building.
Since mortgages are large loans, lenders tend to institute strict underwriting procedures. (Underwriting is when a lender examines your income, debts, assets, and credit to assess your borrowing risk.)
Borrowers have to meet minimum income, credit score, and down payment requirements depending on the property and loan size. You may also need to provide a down payment, or a certain percentage of the loan value in cash, to avoid paying private mortgage insurance.
Once you sign for a mortgage, the lender pays the real estate seller for the property. Then you, as both property buyer and loan buyer, repay the lender over a set timeframe. (Usually with interest.)
Most U.S. loans are fully amortized, meaning that the payment schedule is structured so you pay off the entire loan plus interest by the end of the term. (By contrast, with a partially amortized loan, or balloon loan, a balance remains when the term ends.)
Generally, the mortgage repayment period lasts 15-30 years. Until you repay the loan in full, the property purchased with the funds serves as collateral. In other words, the lender can repossess and sell the property if you fail to make your payments.
Typical Costs Included in a Mortgage Payment
The size of your monthly mortgage payment is generally the sum of three basic components, including your:
- Principal: The amount of money you borrow to purchase property.
- Interest rate: The added cost of borrowing money expressed as a percentage*
- Escrow account payment: Many lenders build your homeowners' insurance premiums and property tax payments into your mortgage. The money is held in a lender-operated escrow account until it's time to make payments.
*Note that your APR (annual percentage rate) is not equivalent to your interest rate. APR is calculated by combining your interest rate plus added fees or optional charges, like discount points.
Other Costs of Owning a Home
But these aren't the only costs of owning a home. In fact, they're not even all the potential costs wrapped in your mortgage payment.
For instance, if you put less than 20% down upfront, you may have to pay private mortgage insurance (PMI). This fee protects the lender in case you default on your payments. PMI costs may be charged upfront, rolled into your mortgage payment, or both.
You may also have to consider closing costs. These are one-time fees required to close on your mortgage. Possible charges include application, origination, attorney, title, recording, or inspection fees. While buyers usually pay these fees, you may also receive a lender credit in exchange for a higher interest rate.
And of course, there are other reoccurring and one-time homeownership costs that don't relate to your mortgage. These may include HOA fees, home maintenance costs, appliance and furniture purchasing and upkeep, utilities, landscaping, and more.
How Much House Can You Afford?
When you apply for a mortgage, lenders will tell you what you're eligible to borrow. But how much you can borrow is often different from how much you should.
Considerations When Taking on a Mortgage
Lender calculations consider what you can borrow without presenting an outsize risk of default. While they consider your income and expenses, they don't necessarily weigh your savings or lifestyle priorities in the mix.
For instance, you could pay $4,000 a month for a mortgage for 30 years and buy a big house in the perfect area. Or, you could pay $2,000 a month for a smaller house a few miles away and save the other $2,000 for your retirement. (Or even just pay off your mortgage twice as fast, or save that money for your taxes and insurance, or...)
You'll also want to consider how your down payment fits into your finances. A larger down payment translates to a smaller mortgage, which lowers the amount of interest you'll pay long-term. Larger down payments also lessen your likeness of paying PMI.
Closing costs are another consideration. If you don't roll them into your mortgage, you may be on the hook for thousands in closing costs upfront. Plus, you may run into problems after closing, such as much-needed upgrades or emergency repairs, that could drain your budget, too.
And of course, you'll want to consider the costs of actually living in your house. Utilities, food, and furniture aren't free just because you're paying a mortgage now!
How Much Mortgage Can You Afford?
One good rule of thumb when taking on a mortgage is the 28/36 rule.
Essentially, the 28/36 rule states you should spend 28% or less of your pre-tax income on home-related costs.
Overall, you should spend under 36% of your pre-tax income on all debts. That includes your mortgage as well as credit cards, student or personal loans, and car loans.
Additionally, you'll want to ensure that you have some savings left after paying closing costs and your first month's mortgage. Experts generally agree you should have at least 3 months' worth of bills stashed in a safe place. If you're feeling extra prepared, saving up to 6 months' worth isn't a bad plan!
How to Reduce Your Monthly Mortgage Payment
One of the easiest ways to reduce your monthly mortgage payment is to take out a smaller loan. That may involve making a larger down payment, buying a cheaper property, or fronting all of your closing costs.
Qualifying for a better interest rate also makes a difference. Shopping different lenders can help you find the best – and cheapest – fit. If your credit score needs some work, spend a few months polishing up by paying off debts and making on-time payments. You can even buy discount points to lower your mortgage interest rate.
Another way to minimize the impact of your mortgage payment is by leasing out a room in your house (if you can). While this doesn't actually lower your payment, bringing a tenant into the equation lowers your portion of the monthly mortgage.
Finally, you may be able to reduce your monthly payment by refinancing your loan. This strategy involves taking out a new loan to pay off the old one. A well-timed finance may get you:
- A longer loan term (lower payments for more time)
- A shorter loan term (higher payments for less time)
- Or even lower your interest rate (lower payments until the mortgage is repaid)
That said, you'll also want to consider potential closing costs or fees incurred during the refinancing process.
How to Use Our Mortgage Calculator
Our Mortgage Calculator comes in handy if you want to see how a mortgage fits into your budget or compare the total cost of two loans. It also reveals long-term interest on a loan and your potential amortization schedule. Plus, you can examine your total homeownership costs by including your property taxes, insurance, and other fees.
Primary Values in Our Calculator
To use our Mortgage Calculator, you'll need the following values:
- Home Price: The purchase price of the house. It is the loan amount borrowed from a lender plus your down payment.
- Down payment: Any upfront payment toward your house. You can insert your down payment as a dollar value or a percentage of the purchase price.
- Loan term: The amount of time you have to repay your home loan. In the U.S., most fixed-rate mortgages have loan terms of 15, 20, or 30 years.
- Interest rate: How much the lender charges you for borrowing money expressed as a percentage. (Note that our calculator accepts fixed rates only.)
Entering these values will reveal your estimated monthly mortgage payment, total mortgage interest, and the total cost of the loan. You'll also see a graph that illustrates how your payments build equity over time, as well as an amortization schedule.
You can also toggle the switch to include the annual cost of:
- Property taxes
- Home insurance
- PMI insurance
- HOA fees
- And other miscellaneous costs
Each of these costs can be entered as a dollar amount or percentage of the home price. Entering these values will reveal a more holistic picture of your homebuying costs over the life of the loan.
Comparing Two Loans
Our Mortgage Calculator can also compare two different loans for the same house with different terms, interest rates, down payments, etc.
Comparing two loans will reveal how your monthly mortgage payments and long-term costs stack up against each other.
When it's time to sign, you'll be glad you picked the better loan for your budget!