Mortgage Calculator
Estimate your monthly payments, see the impact of extra payments, and explore your full amortization schedule with our premium calculator.
What Is a Mortgage?
A mortgage is a loan specifically used to purchase real estate. The property itself serves as collateral for the loan, meaning if you fail to make your payments, the lender can seize the property. Mortgages are typically paid off over a long period, commonly 15 or 30 years.
How Mortgage Payments Are Calculated
Your monthly mortgage payment consists of several components, often referred to as PITI: Principal, Interest, Taxes, and Insurance.
- Principal: The portion of your payment that goes towards paying down the original amount you borrowed.
- Interest: The cost of borrowing the money, paid to the lender.
- Taxes: Property taxes assessed by your local government.
- Insurance: Homeowners insurance and, if applicable, Private Mortgage Insurance (PMI).
Mortgage Formula Explained
The core principal and interest payment is calculated using a standard amortization formula:M = P [ i(1 + i)^n ] / [ (1 + i)^n - 1 ]Where M is the monthly payment, P is the loan principal, i is the monthly interest rate, and n is the total number of payments.
Did You Know?
Making just one extra mortgage payment per year on a 30-year loan can shave several years off your repayment term and save you tens of thousands of dollars in interest!
Fixed vs Adjustable Rate Mortgage
A Fixed-Rate Mortgage has an interest rate that remains the same for the entire life of the loan. This provides predictable monthly payments. An Adjustable-Rate Mortgage (ARM) typically starts with a lower fixed rate for a set period (like 5 or 7 years) and then adjusts annually based on market conditions.
How Down Payment Affects Monthly Payments
Your down payment has a massive impact on your mortgage. A larger down payment reduces the total amount you need to borrow, which lowers your monthly payments and the total interest you'll pay over the life of the loan. Furthermore, a down payment of 20% or more typically eliminates the need for Private Mortgage Insurance (PMI).
Common Mortgage Mistakes
- Not shopping around: Interest rates vary by lender. Even a 0.25% difference can cost or save you thousands.
- Ignoring hidden costs: Remember to factor in property taxes, insurance, HOA fees, and maintenance.
- Taking on too much debt: Just because you qualify for a large mortgage doesn't mean you should take it. Stick to a budget you are comfortable with.
Frequently Asked Questions
What is PMI?
Private Mortgage Insurance (PMI) is required by most lenders if you put down less than 20% on a conventional loan. It protects the lender in case you default on the loan.
Should I make extra mortgage payments?
Making extra payments reduces the principal balance faster, which in turn reduces the total interest you pay and shortens the life of the loan. It is generally a great financial move if you don't have other high-interest debt.
Is a 15-year mortgage better than a 30-year mortgage?
A 15-year mortgage has higher monthly payments but significantly less total interest. A 30-year mortgage offers lower, more manageable payments but costs much more over time. The "better" option depends on your cash flow and financial goals.
How much house can I afford?
A common rule of thumb is the 28/36 rule: your housing expenses should not exceed 28% of your gross monthly income, and your total debt payments should not exceed 36%.