Mortgage Calculator

Mortgage calculator at a glance#

A mortgage calculator works out the fixed monthly payment of principal and interest from your loan amount, annual interest rate and loan term. The payment formula is M = P times r times (1 + r)^n, divided by (1 + r)^n minus 1, where P is the loan amount, r is the annual rate divided by 12, and n is the number of monthly payments.

Worked example. For a $300,000 loan at 6% over 30 years, r is 0.005 (6% divided by 12) and n is 360 (30 years times 12). That gives a monthly payment of about $1,798.65. Over the full 30 years you pay roughly $647,515, of which about $347,515 is interest.

Principal vs interest. The principal is the amount you borrowed; the interest is the lender’s fee for the loan. Each payment is part principal and part interest. Early on, most of the payment is interest: in month 1 of the example above, $1,500 goes to interest and only $298.65 to principal. As the balance falls, more of each payment goes to principal. Property taxes, homeowners insurance and PMI are not in this principal-and-interest figure; they are billed on top and raise your true monthly cost.

These payments are for principal and interest only on a 30-year fixed loan. Enter your loan amount, rate and term in the calculator above for the exact monthly payment, and add taxes, insurance and PMI for your full housing cost. A higher rate or longer term raises the total interest you pay, and lenders round the final figure to the cent.

What a mortgage payment is made of#

The figure the calculator returns is principal and interest, the part set by your loan amount, rate, and term. Your actual housing bill is usually larger because lenders collect a few extra costs in the same monthly payment through an escrow account: property taxes, homeowners insurance, and, if your down payment is under 20%, private mortgage insurance. Taxes are a yearly percentage of the assessed home value; insurance covers damage to the home. Add these on top of principal and interest to see your real monthly cost.

Private mortgage insurance#

PMI protects the lender, not you, and applies when your down payment is below 20% of the price. It adds to the monthly payment until your equity reaches 20%, at which point you can usually request its removal. Putting down 20% or more avoids PMI entirely, which is one reason a larger down payment lowers the payment on two fronts: a smaller loan and no insurance premium.

Loan types and rate structures#

Conventional loans come from private lenders and need solid credit and a down payment. Government-backed loans, such as FHA and USDA, accept lower credit scores or smaller down payments for buyers who qualify. Separately, a fixed-rate mortgage keeps the same rate and payment for the whole term, while an adjustable-rate mortgage holds a fixed rate for an opening period, then resets on a schedule. Fixed rates make the calculator figure stable for the life of the loan; adjustable rates only hold until the first reset.

Ratios lenders check#

Two ratios decide your rate and approval. Loan-to-value (LTV) is the loan divided by the home value; a higher LTV means less equity and more lender risk, which can raise your rate or trigger PMI. Debt-to-income (DTI) is your total monthly debt payments divided by gross monthly income; a lower DTI shows room to take on the mortgage. The APR sits on top of the rate by adding lender fees, so compare APRs across offers to see the true cost.

Lowering the monthly payment#

A larger down payment shrinks the loan and can remove PMI, cutting the payment twice. Refinancing swaps your loan for one at a lower rate, and it usually makes sense when you can drop the rate by roughly half a point or more, weighed against closing costs of about 2% to 5% of the balance. Paying points buys a lower rate upfront: one point is 1% of the loan amount and trims the rate, lowering every payment that follows.

Frequently asked questions#

What is in a monthly mortgage payment?#

Principal and interest set the base. Property taxes, homeowners insurance, and PMI (if your down payment is under 20%) are added through escrow, so your full payment is larger than the principal-and-interest figure alone.

How is the principal and interest calculated?#

With the amortization formula M = P × r × (1 + r)ⁿ / ((1 + r)ⁿ − 1), where r is the annual rate divided by 12 and n is the number of months. A $300,000 loan at 6% over 30 years is $1,798.65 a month for principal and interest.

How much should I put down?#

Putting down 20% avoids PMI and lowers the loan. Many conventional loans allow as little as 3%, and FHA loans go to 3.5%, but a smaller down payment means a bigger loan, PMI, and a higher payment.

How does the loan term change the payment?#

A 30-year term spreads the loan over more months, so the payment is lower but the total interest is higher. A 15-year term raises the monthly payment and saves a large amount of interest over the life of the loan.

Do extra payments help?#

Yes. Money paid above the scheduled amount goes straight to principal, which shortens the term and cuts total interest. One extra payment a year can shave several years off a 30-year loan.