Mortgage Calculator

How your mortgage payment is calculated

A fixed-rate mortgage is repaid in equal monthly payments. The principal and interest part is P × r ÷ (1 − (1 + r)^−n), where P is the loan amount, r the monthly rate (the annual rate ÷ 12) and n the number of payments (360 for a 30-year loan). Most lenders also collect property tax and homeowners insurance each month through an escrow account, so your real house payment is PITI: principal, interest, taxes and insurance, plus HOA dues if you have them.

The default example is a $350,000 home with 20% down, so you borrow $280,000 at 6.5% for 30 years. Principal and interest come to $1,769.79 a month. Add $3,850 a year in property tax ($320.83 a month) and $1,800 a year in insurance ($150 a month) and the total is about $2,240.62 a month.

Early payments are mostly interest. In the first month of that loan, $1,516.67 goes to interest and only $253.12 to principal, and it takes until payment 233, almost 20 years in, before more of each payment goes to principal than to interest. Over 30 years you would pay about $357,125 in interest, more than the amount you borrowed.

15-year vs 30-year mortgage

A 15-year loan has a much higher monthly payment but saves a large amount of interest. The same $280,000 at 6.5% costs $2,439.10 a month over 15 years with about $159,038 of interest, compared with $1,769.79 a month and $357,125 of interest over 30 years. Lenders also usually price 15-year loans lower; at 5.75% the 15-year payment would be $2,325.15 with about $138,527 of interest.

A 30-year loan gives you a lower required payment and more flexibility. If you want the best of both, you can take a 30-year loan and make extra principal payments when you can afford them, as long as the loan has no prepayment penalty.

Down payment and PMI

With a conventional loan and less than 20% down, lenders require private mortgage insurance (PMI), typically 0.3% to 1.5% of the loan amount a year. Under the Homeowners Protection Act you can ask to cancel PMI once your balance reaches 80% of the home’s original value, and it ends automatically at 78%. FHA loans allow 3.5% down but charge their own mortgage insurance premium, which often lasts for the life of the loan.

Putting 10% down on the same $350,000 home means borrowing $315,000. At 6.5% for 30 years that is $1,991.01 a month in principal and interest before PMI, about $221 more than with 20% down.

How much house can you afford?

A common guideline is the 28/36 rule: keep your total housing payment at or below 28% of your gross monthly income, and all debt payments, including car loans, student loans and credit cards, at or below 36%. The $2,240.62 payment above fits the 28% guideline with a gross income of about $8,000 a month, or roughly $96,000 a year.

Rates matter as much as price. On a $280,000 loan, each half-point is worth about $90 a month: $1,678.74 at 6%, $1,769.79 at 6.5% and $1,862.85 at 7%. Over 30 years the difference between 6% and 7% is about $66,000 in interest, so it pays to compare offers from several lenders on the same day.