How to use this mortgage calculator
This mortgage payment calculator will help you find the cost of homeownership at today's mortgage rates, accounting for principal, interest, taxes, homeowners insurance, and, where applicable, homeowners association fees.
You should adjust the default values of the mortgage calculator, including mortgage rate and length of loan, to reflect your current situation.
You can use the mortgage payment calculator in three ways:
- To find the monthly mortgage payment on a home, given current mortgage rates and a specific home purchase price
- To find out how much house you can afford based on your annual household income
- To find out how much house you can afford based on your monthly budget
How to lower your monthly payments
If your mortgage calculator results are not yielding the lower monthly payments you hoped for, here are several techniques to try:
- Lower purchase price: The less you borrow, the lower your mortgage payment
- Bigger down payment: Putting more money down means you'll borrow less. Also, the best mortgage rates generally go to borrowers with larger down payments, among other qualifying factors
- Avoid private mortgage insurance: When you put at least 20% down on a conventional loan — or 20% home equity on a refinance — you can avoid paying monthly private mortgage insurance premiums (PMI)
- Longer loan term: A longer loan term means lower monthly payments. However, you will pay more in total interest over the life of the loan
- Shop for a lower rate: Rate shopping doesn't have to take long, and it's well worth the savings
What's included in a mortgage payment?
Your mortgage payment consists of four costs, which loan officers refer to as 'PITI.' These four parts are principal, interest, taxes, and insurance.
- (P) Principal: The amount you owe without any interest added. If you buy a home for $400,000 with 20% down, then your principal loan balance is $320,000
- (I) Interest: The amount of interest you'll pay to borrow the principal. If the same $320,000 loan above has a 4% rate, then you'll pay $12,800 for the first year in interest repayment
- (T) Taxes: Property taxes required by your city and county government
- (I) Insurance: Homeowners insurance and, if required, private mortgage insurance premiums (PMI) on a conventional loan
When determining your home buying budget, consider your entire PITI payment rather than only focusing on principal and interest. If taxes and insurance are not included in a mortgage calculator, it's easy to overestimate your home buying budget.
How PITI affects your mortgage qualification
When lenders assess whether or not you can afford a mortgage loan, they'll compare your estimated PITI with your gross monthly income (income before taxes and deductions).
Your PITI, combined with any existing monthly debts, should not exceed 43% of your monthly gross income — this is called your debt-to-income ratio (DTI).
Your DTI is a primary factor in whether or not you'll qualify for a mortgage.
Do I qualify for a mortgage?
A mortgage calculator can be helpful when estimating your home buying budget. But remember — even if you can afford the monthly payments, you still need to qualify for a home loan.
To see if you qualify for a mortgage, a lender will check your:
- Credit score: Borrowers with higher credit scores tend to have more loan options. Some lenders can approve FHA loans for borrowers with FICO scores as low as 580
- Loan-to-value ratio (LTV): LTV measures your loan amount against your new home's value. Lenders can offer VA or USDA loans at 100% LTV, FHA loans can't exceed 96.5% LTV, and conventional loans can reach 97% LTV
- Home appraisal: A home appraisal identifies the home's value. Lenders won't approve loan amounts that exceed the home's value
- Personal finances: Lenders must verify your income to make sure you can afford the loan payments. They'll check W-2s, bank statements, and employment records
You can ask for a mortgage pre-approval or a prequalification to see your loan options and "real" budget based on your personal finances.
Mortgage calculator definitions
Buying a home involves more than just a down payment. Your total mortgage costs include repaying the home loan with principal and interest, plus paying for monthly fees like property taxes and home insurance.
Home price
Home price is the dollar amount needed to buy the home. Your home price may turn out to be different from the listing price once you and the seller have finished negotiations and put the final price down in a purchase contract.
Interest rate
Your interest rate determines how much money you will repay the bank for your mortgage. Though paid monthly, interest rates are expressed in annual terms.
- With a fixed-rate mortgage, your mortgage interest rate will remain unchanged for the life of the loan. This means your monthly payments will stay the same, too
- With an adjustable-rate mortgage, your interest rate may change after a fixed number of years. If your interest rate adjusts, so will your mortgage payments
Length of the loan
Sometimes known as "loan term," the length of the loan is the number of years until your home loan is paid in full. Most mortgages have a loan term of 30 years. Since 2010, 20-year and 15-year fixed-rate mortgages have grown more common.
The monthly cost of a mortgage is higher with a shorter-term loan, but less mortgage interest is paid over time. Homeowners with a 15-year mortgage will pay approximately 65% less mortgage interest as compared to a homeowner with a 30-year loan.
Down payment
A down payment is the amount of your own money you pay upfront to buy a new home. Your down payment, combined with the loan amount, will cover the entire purchase price.
A down payment can become immediate equity. For example, if you are buying a home for $100,000 and you make a $5,000 down payment, you will own $5,000 equity (5%) in your new home even before making the first monthly payment.
Some mortgage programs, such as the conventional 97 and FHA loans, allow low down payments of 3-3.5%. Others, including the VA loan and USDA loan, require no down payment whatsoever.
Homeowners insurance
Homeowners insurance protects your home against minor, major, and catastrophic loss. All homeowners are required to carry this protection, which is sometimes called "hazard insurance."
Laws vary by state but, as a general rule, your homeowners insurance policy must be big enough to cover the cost of rebuilding your home as-is. Along with property taxes, homeowners insurance can be paid in equal installments along with your monthly mortgage payment.
Property taxes
Property taxes are taxes assessed on a home, and paid to your state, city, and/or local government(s). Property taxes can range in cost from 0.5% of your home's value to 2% of its value or more on an annual basis.
Sometimes called "real estate taxes," property taxes are typically billed twice annually. Along with homeowners insurance, they can be paid in equal installments along with your monthly mortgage payment — this is known as "escrowing" your taxes and insurance.
Escrow account
Escrow isn't a term on the mortgage calculator, but it'll appear in more than one phase of your home buying process. Before you close, an escrow company will shuttle money between different parties.
After you close, your mortgage loan servicer will deposit part of your total monthly payment into an escrow account. When your property tax or home insurance bills come due, the lender will pay them out of escrow.
Homeowners Association (HOA) dues
Homeowners Association dues (also called HOA fees) are typically paid by condominium owners and homeowners in a planned urban development (PUD) or townhome.
HOA fees cover common services for tenants and residents. These services may include landscaping, elevator maintenance, maintenance and upkeep of common areas such as pools and recreation areas, and legal costs.
Mortgage insurance (PMI)
Mortgage insurance is a monthly fee paid by the homeowner for the benefit of the lender. Mortgage insurance is required for conventional loans via Fannie Mae and Freddie Mac when the down payment is less than 20%. This type of mortgage insurance is known as private mortgage insurance (PMI).
Conventional PMI will be canceled once the homeowner has at least 20% equity. FHA mortgage insurance typically lasts the life of the loan, unless the buyer makes a down payment of 10% or more.
Debt-to-income ratio
Debt-to-income ratio (DTI) is a lender term used to determine home affordability. The ratio is determined by dividing the sum of your monthly debts by your verifiable monthly income.
In general, mortgage approvals require a debt-to-income of 45% or less, although lenders will sometimes allow for an exception.
Amortization
Amortization is the schedule by which a mortgage loan is repaid to a bank. Early in the repayment period, your monthly loan payments will include more interest. As time passes, each month's payment will include a little more principal and a little less interest.
Mortgage payment formula
For those who like a hands-on approach to determining their monthly mortgage payment, use this equation:
M = P[r(1+r)^n / ((1+r)^n − 1)]
- M: Total monthly mortgage payment
- P: Principal loan amount
- i: Monthly interest rate. Lenders provide an annual rate, so divide by 12. For example, if your rate is 5%, your monthly rate is 0.004167 (0.05/12)
- n: Number of payments over the life of the loan. Multiply your loan term by 12. A 30-year loan = 360 monthly payments
This formula will come in handy when determining how much home you can afford. Since the equation does not account for down payments, it can also be used when refinancing your home.
Check your mortgage eligibility
Using a mortgage calculator is a good way to get an idea of how much house you can afford. But only a lender can verify your mortgage eligibility and your home buying budget.
Check today's rates to see what you might qualify for and how much house you can truly afford.
By refinancing an existing loan, the total finance charges incurred may be higher over the life of the loan.