Mortgage Calculator

A mortgage calculator estimates the monthly rate for a property financing and shows its breakdown. By entering the property price, down payment, interest rate and term, both the loan amount as well as all included taxes and insurance contributions are shown. This version allows to display the individual components of the monthly rate separately, create a progress graph that shows the decrease in the remaining amount, and calculate backwards which property prices, interest rates or terms are financially feasible.

What costs are included in the monthly rate?

The amount you pay your lender each month includes more than just the money you borrowed. This is often referred to by lenders as "PITI" and stands for: Principal, Interest, Taxes, and Insurance.

The principal is the part of your monthly payment that goes toward paying off the original amount you borrowed. Interest is what lenders charge for providing money to you. At the beginning of a loan term, interest makes up most of your monthly payment. Over time, this split gradually shifts more toward principal, which increases your equity in the home.

Most lenders also collect property taxes and insurance through an escrow account and set aside a certain amount each month to ensure payments are made on time. If you make a low down payment, private mortgage insurance (PMI) may be required. In some cases, homeowners association (HOA) fees may also apply if the home is in a condominium or planned community. It's important to factor all of these costs into your calculations to get an accurate picture of what owning a home will cost you, not just the loan itself.

Here's how to use this calculator.

First, you enter the property price, deposit amount, interest rate and length of loan. This information will give you a monthly capital and interest payment - your basic loan repayment figure.

Then you can enter the annual property taxes, annual insurance premiums and monthly homeowners association (HOA) fees to determine your total PITI cost. The private mortgage insurance (PMI) is automatically calculated by the calculator. If the down payment is less than 20 percent, a PMI fee will be charged based on a variable rate, but once that threshold is reached, the PMI fee goes away.

You can also work backwards. Leave one of the values - property price, interest rate or term - blank and enter the monthly payment you can afford along with the remaining values. The missing value will then be calculated. If you enable the extra payments option, you can see how a slightly higher monthly payment reduces the length of your loan. Enabling affordability will give you an idea of what burden the monthly repayments are on your income.

The basis for calculating a monthly mortgage payment is:

For the capital and interest part a standard formula for equal amortization and interest is used where the amount is spread over each monthly installment.

M is the monthly payment required to pay off both principal and interest, P represents the loan amount (the amount remaining after subtracting the down payment from the price of the home), r is the monthly interest rate, and n is the total number of payments. The monthly interest rate is found by dividing the annual interest rate by 12, and the number of payments is equal to the length of time for the loan (in years) multiplied by 12. For a 30-year mortgage, there would be 360 payments.

A house is purchased for $300,000 with a down payment of 20 percent. The loan amount is therefore $240,000, the interest rate is 6.5 percent per year and the term of the loan is 30 years. In this case r is the value resulting from dividing 0.065 by 12 and n is 360.

To determine the total payment, monthly amounts for property taxes, insurance and HOA fees are added together. The table below shows each of these symbols and their example values.

Down payment and PMI (private mortgage insurance)

The down payment is the cash amount paid in advance that makes a significant factor in determining your initial equity. The higher the down payment, the lower the loan amount, the lower the monthly rate and less interest will be paid over the life of the loan.

The amount of the down payment also determines whether Private Mortgage Insurance (PMI) is required. If the down payment is less than 20 percent, lenders typically require PMI to cover the higher risk. PMI usually costs about 0.5 to 1.5 percent of the loan amount per year and is paid monthly. PMI is not a permanent fee. It can be canceled when the home's equity reaches 20 percent through either amortization or appreciation in value.

Select the term of the loan

The term of a loan is the length of time it takes to pay off the loan in full. The most common options are 30 years and 15 years. A longer term will result in lower monthly payments, but because interest is paid over a longer period of time, the total cost will be higher. A shorter term means higher monthly payments, but will allow you to pay off your debt faster and save on interest.

It is not necessary to stick rigidly to the original repayment schedule. By making extra payments on principal or by making annual lump sum payments, you can shorten the loan term and reduce interest costs. A refinance is not required for this.

Types of Mortgage

A loan program determines the interest rate, down payment amount and whether private mortgage insurance (PMI) is required. Conventional loans are offered by private lenders; borrowers with good credit and a 20% down payment generally receive lower rates and are exempt from PMI. FHA loans, backed by the U.S. Department of Housing and Urban Development, allow for lower down payments and less stringent credit requirements but require PMI. VA loans enable eligible veterans to buy a home without a down payment or PMI, though they do have an origination fee. USDA loans target buyers in rural areas who meet certain criteria and allow for little or no down payment. Jumbo loans exceed the limits of conventional loans and typically require higher down payments and stronger financials.

What price house can I afford?

A common starting point is the following rules of thumb: Housing costs should not exceed 28 percent of your monthly gross income, and all debt payments should be no more than 36 percent of your income. For a $5,000 monthly salary, that means $1,400 for mortgage payment including taxes and insurance.

These rules are guidelines and not strict limits. Since housing is usually the largest expense in life, monthly mortgage payments need to be factored into your budget along with retirement savings, emergency fund, and daily expenses. If you calculate these numbers before looking for a home, then you can limit your search to something that you can comfortably afford.

This calculator is for educational and planning purposes only. It does not constitute financial advice and doesn't include closing costs, variable rate interest changes or all the fees a lender may charge. Actual rates and monthly payments can vary based on credit, property and lender. Please consult with a qualified professional before taking out a mortgage.