Mortgage Calculator

How the Mortgage Calculation Works

The Formula

Your monthly mortgage payment is calculated using the following formula:

M = P × [r(1 + r)^n] / [(1 + r)^n - 1]

Where:
M = Monthly payment (principal + interest)
P = Principal loan amount
r = Monthly interest rate (annual rate ÷ 12)
n = Total number of payments (years × 12)

Step-by-Step Calculation Example

Let's calculate a $400,000 mortgage at 6.5% APR for 30 years:

Convert annual rate to monthly: 6.5% ÷ 12 = 0.542% monthly (0.00542 as decimal)
Calculate total payments: 30 years × 12 months = 360 payments
Apply the formula: M = $400,000 × [0.00542(1.00542)^360] / [(1.00542)^360 - 1]
Result: $2,528/month (principal + interest only)

This $2,528 covers only principal and interest. Your actual monthly payment (PITI) will include:

Property taxes: Typically 1-2% of home value annually ($6,000-12,000/year on a $600,000 home = $500-1,000/month)
Homeowner's insurance: Average $1,500-2,500/year ($125-210/month)
PMI (if down payment less than 20%): 0.5-1% of loan amount annually ($2,000-4,000/year = $167-333/month)
HOA fees: Varies by property ($0-500+/month)

Total monthly payment example: $2,528 (P&I) + $750 (taxes) + $170 (insurance) + $250 (PMI) = $3,698/month

How to Use This Mortgage Calculator

Enter home price: The total purchase price of the property you're considering
Enter down payment: Amount you'll pay upfront (minimum 3% for conventional, 3.5% for FHA, but 20% eliminates PMI)
Enter interest rate: Current APR offered by your lender (check current rates from 3-5 lenders)
Select loan term: 15 years (higher payment, less interest) or 30 years (lower payment, more interest)
Add property tax rate: Check your county assessor's website for local tax rate (typically 0.8-2.5% annually)
Add annual insurance: Get quotes from 3-5 insurance providers (average $1,500-2,500/year)
Add HOA fees: Check property listing or HOA documents if applicable
Click Calculate: See your complete monthly payment breakdown

Understanding Your Results

Monthly Payment Breakdown

Your monthly payment consists of four main components (PITI):

Principal: The portion that reduces your loan balance (starts small, grows over time)
Interest: The cost of borrowing (starts large, decreases over time)
Taxes: Property taxes escrowed and paid annually by your lender
Insurance: Homeowner's insurance plus PMI if applicable

In year 1 of a $400,000 loan at 6.5%, approximately 86% of your payment goes to interest ($2,167) and only 14% to principal ($361). By year 15, this flips to roughly 50/50. By year 25, about 75% goes to principal.

Total Interest Paid Over Loan Life

On a $400,000 loan at 6.5% for 30 years, you'll pay approximately $510,000 in interest alone. This means your $400,000 home actually costs $910,000 total. This is why interest rates matter so much:

At 6.0%: $463,000 total interest (save $47,000)
At 6.5%: $510,000 total interest
At 7.0%: $558,000 total interest (pay $48,000 more)

How to Lower Your Mortgage Payment

1. Improve Your Credit Score

Every 20-point increase in credit score typically reduces your rate by 0.15-0.25%. Going from 680 to 760 credit score could lower your rate by 0.75-1%, saving you $150-200/month on a $400,000 loan ($54,000-72,000 over 30 years).

Quick ways to boost your score:

Pay down credit cards below 30% utilization (can increase score 20-40 points in 30-60 days)
Dispute errors on credit report (25% of reports contain errors)
Become authorized user on someone's old account with perfect payment history
Don't apply for new credit 6 months before mortgage application

2. Increase Your Down Payment

Putting 20% down instead of 10% on a $500,000 home saves you:

$50,000 less borrowed = $316/month in P&I savings
$200-250/month by eliminating PMI
Possible 0.25% lower interest rate = $60/month savings
Total savings: $575-625/month or $207,000-225,000 over 30 years

3. Choose a Shorter Loan Term

15-year mortgages typically have rates 0.5-0.75% lower than 30-year mortgages. $400,000 loan comparison:

30-year at 6.5%: $2,528/month, $510,000 total interest
15-year at 5.75%: $3,333/month, $200,000 total interest
Trade-off: $805 higher monthly payment, but save $310,000 in interest

Frequently Asked Questions

What credit score do I need for a mortgage in 2026?

Minimum credit scores by loan type: Conventional loans require 620 minimum (740+ for best rates), FHA loans accept 580 with 3.5% down or 500 with 10% down, VA loans have no official minimum but lenders typically want 620+, and USDA loans require 640 minimum. Rate impact is significant: a 620 score might get 7.5% while a 760+ score gets 6.0%, which is $350/month difference on a $400,000 loan ($126,000 over 30 years).

Should I choose a 15-year or 30-year mortgage?

Choose a 15-year mortgage if you can comfortably afford 40-50% higher monthly payments, plan to stay in the home long-term, want to build equity faster, and prioritize paying less interest overall. You'll save $200,000-400,000 in interest but have less monthly flexibility. Choose a 30-year mortgage if you want lower monthly payments, need financial flexibility for other goals, plan to move within 7-10 years, or can invest extra money at returns higher than your mortgage rate. About 85% of buyers choose 30-year mortgages.

What is PMI and how do I eliminate it?

Private Mortgage Insurance (PMI) is required when your down payment is below 20%. It costs 0.5-1% of the loan amount annually ($2,000-4,000/year on a $400,000 loan, or $167-333/month). PMI protects the lender if you default, not you. To avoid PMI: put 20% down initially, use a piggyback loan (10% down + 10% second mortgage), choose a VA loan (veterans only), or accept lender-paid PMI (slightly higher interest rate). Once you reach 20% equity through payments or appreciation, you can request PMI removal. It automatically drops off at 22% equity.

How much should I put down on a house?

While 20% down is ideal (eliminates PMI, lowers rate, reduces monthly payment), most buyers put down 3-15%. The trade-offs: 20% down on a $500,000 home ($100,000) saves you $200-250/month by eliminating PMI and may lower your rate by 0.25%, but requires significant cash. 10% down ($50,000) still requires PMI but preserves $50,000 for emergencies, repairs, and furnishing. 3-5% down (minimum) gets you into a home faster but results in higher monthly payments and PMI. Don't drain all savings for a large down payment—keep 6 months expenses as emergency fund.

Can I pay off my mortgage early without penalty?

Most mortgages originated after 2010 have no prepayment penalty, but always check your loan documents. Making extra principal payments can save enormous amounts in interest. For example, paying an extra $200/month on a $400,000 loan at 6.5% saves $114,000 in interest and pays off the loan 7 years early. Even one extra payment per year (divide monthly payment by 12 and add to each payment) saves $60,000 and cuts 4 years off the loan. Any extra payment should be designated as "principal only" to ensure it reduces your balance rather than prepaying future payments.

How do I know if I can afford a house?

Lenders use two key ratios: Front-end ratio (housing payment ÷ gross monthly income) should be 28% or less, and Back-end ratio (all debt payments ÷ gross monthly income) should be 36% or less. For example, with $8,000/month gross income, your housing payment shouldn't exceed $2,240 (28%) and total debt payments shouldn't exceed $2,880 (36%). However, these are maximums—consider your lifestyle, savings goals, and other expenses. A comfortable budget is often 25% or less of gross income for housing.

Disclaimer: This calculator provides estimates for educational purposes only. Actual mortgage terms, payments, and costs vary by lender, location, credit score, and market conditions. Property taxes and insurance rates are estimates—verify actual costs with local authorities and insurance providers. Consult with a licensed mortgage professional for personalized advice and accurate quotes.