Mortgage Calculator

How to Use This Mortgage Calculator

1. Enter the total home price you are considering purchasing.

2. Input your down payment amount (the upfront cash you will pay).

3. Select your desired loan term (10, 15, 20, or 30 years).

4. Enter the annual interest rate offered by your lender.

5. Click "Calculate Mortgage" to see your monthly payment, total interest, and amortization schedule.

What is a Mortgage?

A mortgage is a secured loan used to purchase real estate, where the property itself serves as collateral for the loan. The borrower agrees to repay the loan over a set period, typically 15 or 30 years, through regular monthly payments that include both principal and interest. If the borrower fails to make payments, the lender has the legal right to foreclose on the property and sell it to recover the outstanding debt.

Mortgages are the most common way Americans finance home purchases, with the vast majority of homebuyers using some form of mortgage financing. The mortgage market offers various loan types including conventional loans, FHA loans (insured by the Federal Housing Administration), VA loans (for veterans and military members), and USDA loans (for rural properties). Each loan type has different requirements for down payments, credit scores, and income verification.

The amortization schedule shows how each monthly payment is split between principal and interest over the life of the loan. In the early years, the majority of each payment goes toward interest because you owe a larger balance. As you pay down the principal over time, more of each payment goes toward reducing your loan balance and less goes toward interest. This is why making extra principal payments early in your mortgage can significantly reduce the total interest you pay.

Understanding Mortgage Costs

Your monthly mortgage payment typically includes more than just principal and interest. Most lenders require an escrow account to pay property taxes and homeowners insurance, which are added to your monthly payment. If your down payment is less than 20%, you will likely need to pay private mortgage insurance (PMI), which protects the lender if you default on the loan. PMI typically costs between 0.5% and 1% of the loan amount annually and can be removed once you reach 20% equity.

When shopping for a mortgage, compare the Annual Percentage Rate (APR) rather than just the interest rate. The APR includes the interest rate plus other costs like origination fees, discount points, and mortgage insurance, giving you a more complete picture of the loan's true cost. Even a small difference in interest rates can mean thousands of dollars over the life of a 30-year mortgage.

Tips for Getting the Best Mortgage Rate

Your credit score is one of the most important factors in determining your mortgage rate. Borrowers with excellent credit scores (740 or higher) typically qualify for the lowest rates. Before applying for a mortgage, check your credit report for errors and work on paying down existing debt to improve your debt-to-income ratio. Consider getting pre-approved by multiple lenders to compare offers, as rates can vary significantly between lenders.

The size of your down payment also affects your rate and overall costs. A larger down payment reduces the lender's risk, potentially qualifying you for better rates and eliminating the need for PMI. While 20% down is ideal, many loan programs allow down payments as low as 3% to 5% for qualified borrowers.

Mortgage Payment Formula

The monthly payment is calculated using: M = P[r(1+r)^n]/[(1+r)^n-1]

M = Monthly payment

P = Principal (loan amount after down payment)

r = Monthly interest rate (annual rate / 12)

n = Total number of payments (years x 12)