How to Calculate Your Mortgage Payment
The math behind mortgage payments is complex, but mortgage calculator makes this math easy and fast.
First, next to the field labeled “Home Price,” enter the price (if you’re buying) or the current value of your home (if you’re refinancing).
In the “Down Payment” section, enter your down payment amount (if making a purchase) or your equity amount (if making a refinance). A down payment is the money you pay up front for your home, while home equity is the value of the home minus your debt. You can enter an amount you specify or a percentage of the purchase price.
Next, you’ll see “Loan Term.” Choose a term – usually 30 years, but it could be 20, 15 or 10 years – and our calculator will adjust the repayment schedule.
Finally, in the “Interest Rate” field, enter the interest rate you wish to pay. Our calculator defaults to the current average rate, but you can customize the percentage.
As you enter these numbers, the new principal and interest amounts will appear on the right. Bankrate’s calculator can also estimate property taxes, homeowners insurance, and homeowners association fees. You can edit or even ignore these amounts when looking for a loan—these fees may count toward your escrow payments, but won’t affect your principal and interest as you explore your options.
Mortgage Payment Formula
Do you want to know what your monthly mortgage payments are? For those interested in math, here’s a formula to help you manually calculate mortgage payments:
How a Mortgage Calculator Can Help
- When setting your housing budget, it’s crucial to determine your monthly housing payment—it’s probably your biggest recurring expense. If you’re looking to buy a loan or refinance, you can use Bankrate’s mortgage calculator to estimate your mortgage payment. To study different scenarios, just change the details you enter in the calculator. The calculator will help you decide:
- A credit period that suits you. If your budget is set, a 30-year fixed-rate mortgage may be the right choice. These loans have lower monthly payments, although you pay more interest over the life of the loan. If you have some wiggle room in your budget, a 15-year fixed-rate mortgage will reduce the total interest you have to pay, but your monthly payments will be higher.
- When you spend more than you can afford. The Mortgage Calculator outlines how much you can pay each month, including taxes and insurance.
- How much to drop. 20% is considered a standard deposit, but is not required. Many borrowers only pay 3%.
Understanding Your Mortgage Payments
Most of your mortgage payments include principal and interest. Principal is the amount you borrow, and interest is the amount you pay the lender to borrow. Your lender may also charge an additional amount each month to escrow, money that the lender (or service provider) usually pays directly to the local property tax collector and your insurance company.
Typical Fees Included in a Mortgage Loan
- Principal: This is the amount you borrow from the lender.
- Interest: This is the fee the lender pays you to lend you money. Interest rates are expressed as an annual percentage.
- Property Tax: Local authorities levy an annual tax on your property. If you have an escrow account, you pay about 1/12 of your annual tax bill each month.
- Homeowners Insurance: Your insurance policy can cover damage and property damage from fire, storm, theft, fallen trees in your home, and other hazards. You’ll get an additional policy if you live in a flood zone, and possibly a third policy if you’re in a Hurricane Alley or earthquake zone. As with property taxes, you pay one-twelfth of your annual insurance premium each month, and your lender or service provider pays the premium when it comes due.
- Mortgage Insurance: If your down payment is less than 20% of the purchase price of your home, you may want to get mortgage insurance, which will also be added to your monthly payment.
- Decide how much house you can afford
If you’re not sure how much of your income to spend on housing, follow the tried and true 28/36% rule. Most financial advisors agree that people should not spend more than 28% of their gross income on housing (i.e. your mortgage) and 36% of their gross income on debt, including mortgages, credit cards, Student loans, medical bills, etc. Here’s an example of what it looks like:
Jake makes $60,000 a year. That’s a gross monthly income of $5,000. $5,000 x 0.28 = $1,400 total monthly mortgage payment (PITI)
Joe’s total monthly mortgage loan—including principal, interest, taxes, and insurance—should not exceed $1,400 per month. The maximum loan amount is approximately $253,379. You may qualify for a mortgage with a debt-to-income (DTI) ratio of up to 50% for some loans, but you may not have enough room in your budget for other living expenses, retirement, emergency savings and voluntary spending if you are too Lenders won’t consider these budget items when pre-approving your loan. So it’s up to you to factor these costs into your perception of housing affordability. Knowing what you can afford can help you take the next step financially wise. The last thing you want to do is get a 30-year home loan that is too expensive for your budget, even if the lender is willing to lend you the money. The Bankrate How much House Can I Afford calculator will help you calculate these numbers.
How to Lower Your Monthly Mortgage Payment
If the monthly payments you see in our calculator seem a little out of reach, there are a few strategies you can try to reduce your hits. Use some of these variables:
- Choose a longer loan. In the long run, you pay less (but you pay more interest over the life of the loan).
- Buy a house for less money. Lower borrowing means lower monthly mortgage payments.
- Avoid PMI. A down payment of 20% or more (or 20% or more equity in the case of a refi) gets you into Private Mortgage Insurance (PMI).
- Buy lower rates. Be aware, however, that some ultra-cheap fares require you to pay for prepaid points.
- Make a bigger deposit. This is another way to reduce the loan amount.
Mortgage Calculator: Other Uses
Most people use a mortgage calculator to estimate payments on a new mortgage, but it can be used for other purposes as well.
Here are some other uses:
Plan to pay off your mortgage early.
- Use the extra payments feature of the Bankrate Mortgage Calculator to learn how to shorten your term and save more in the long run by paying extra money on top of your loan principal. You can pay these extras monthly, yearly, or even once.
- To calculate the savings, click the Amortization/Payment Plan link and enter an assumed amount in one of the payment categories (monthly, yearly, or one-time), then click Apply Additional Payments to see how much interest payments you will end up with and Your new payment date.
Determine if ARM is worth the risk.
- Adjustable-rate mortgages or ARMs’ lower initial rates can be tempting. While ARMs may be suitable for some borrowers, others may find that the lower initial interest rate doesn’t lower their monthly payments as much as they thought.
- To see how much you actually saved initially, try entering the ARM rate into a mortgage calculator and keep the term at 30 years. These payments are then compared to what you would get if you entered your traditional 30-year fixed-rate mortgage rate. This can confirm your initial hope for the benefits of ARM – or give you a reality check on whether the potential benefits of ARM really outweigh the risks.
Find out when you can get rid of private mortgage insurance.
- You can use a mortgage calculator to determine when you will have 20% of your home equity. This is the magic number that requires lenders to waive their personal mortgage insurance requirements. If you buy a home with less than a 20% down payment, you will have to pay extra monthly on top of your normal mortgage to offset the lender’s risk. Once you own 20%, this fee is eliminated, which means more money in your pocket.
- Just enter the original amount and closing date of your mortgage, and click View Amortization Schedule. Then multiply your original mortgage amount by 0.8 and compare it to the next number in the rightmost column of the amortization table to see when you’ll hit 20% equity.