Calculate Your Mortgage Payments

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Calcualting Your Mortgage Payment

Before you start house hunting, you need to know much house you can afford. A mortgage calculator can help by showing you how much you’ll pay each month depending on the price of the home you buy and the size of your down payment.

The free Business Insider mortgage calculator shows how much you’ll pay each month based on your home price, down payment, term length, and mortgage rate. We also provide customized tips on how to save money on your mortgage.

How to use the mortgage calculator

To see your mortgage payment with our calculator, here’s what you’ll need to provide:

The purchase price of the home: This is the amount you agree to pay the seller.

Down payment: How much of your own cash you’ll be bringing to the transaction. A down payment on a house may be as low as 3%, or even 0%, depending on the loan type. The calculator’s default is 20%, which is the amount you’ll need to put down if you want to avoid paying for private mortgage insurance if you’re getting a conventional loan.

Length of the loan: Your loan term, or the amount of time it takes to pay off your mortgage. The calculator uses a 30-year mortgage term as the default.

Interest rate: The amount your mortgage lender charges you for borrowing the money to purchase your home.

With these inputs, you can use the calculator to help determine how much house you can afford and what your monthly payments and overall expenses will be.

Click on “more details” to see how much you might pay in interest over the life of your loan, and how different rates and term lengths can impact that amount. You’ll also get some tips on exactly how you can save on interest.

Why use a mortgage calculator?

How can it help homebuyers?

You’ve entered numbers into the mortgage calculator. What can you do with this information?

• Determine how much house you can afford. With our mortgage calculator, you can enter how much you want to spend on a home and the amount you have for a down payment. If the monthly payment is too high for your current budget, you may decide that you need to buy a less expensive home.
• See how much more you need to save. The calculator also shows how a higher or lower down payment will affect your monthly mortgage payments. This can help you decide if you’re ready to buy a house now, or if it makes more sense to wait a little longer to save more.
• Choose a term length. Input a few term lengths to figure out which one best fits your budget. With a 30-year term, your monthly payments will be lower, but you’ll pay more in the long run since you’re spreading payments out over a longer period of time. A 15-year mortgage will give you a higher monthly payment but cost less over the years. Play around with term lengths and think about which one best suits your goals.
• Find out how your interest rate affects payments. This can be particularly helpful if you’re thinking about refinancing, or if you think you could snag a lower rate by improving your credit score before applying for a mortgage. Use the calculator to see how much of a difference a slightly lower rate could make, and if it’s worth it to you.
• Learn how to save money. Once you’ve entered your numbers, we provide a few suggestions on how you can either lower your monthly payments or save in the long term.

Key factors that affect your mortgage payments

This mortgage calculator shows you how much you’ll pay toward your principal and interest each month, but your actual mortgage payment will likely include a couple other charges. Here’s a breakdown of the different items that make up your mortgage payment.

• Principal: This is the amount you borrow to buy your home. For example, if you want to buy a $400,000 home and have $50,000 for a down payment, you’ll need to borrow $350,000. Your loan principal is $350,000. You’ll pay a portion of this each month, reducing your principal balance over time.
• Interest: This is what the bank charges you to borrow money. 
• Taxes: Mortgage lenders typically include your property taxes in your monthly mortgage payment and hold this part of your payment in an escrow account. When the taxes come due, the lender will pay them on your behalf using the money in the escrow account. 
• Insurance: As with property taxes, your homeowners insurance premium will also be included in your monthly payment and set aside in an escrow account. If you made a small down payment or you have an FHA mortgage, a small portion of your monthly payment will also go toward a mortgage insurance premium, which protects the lender.

You may see this full mortgage payment amount referred to as “PITI.”

Interest rates and their impact

Mortgage rates fluctuate from day to day and even from hour to hour. The higher your rate, the more you’ll pay on your mortgage, both on a monthly basis and over the life of the loan. 

You can get a better rate by making a larger down payment or improving your credit score. But overall rate trends are influenced by what’s going on in the economy. So a homeowner who got their mortgage several years ago may have a significantly lower rate compared to someone getting a mortgage right now.

The role of property taxes and insurance

Because your lender benefits when you pay your property taxes and homeowners insurance, it typically will include these costs in your monthly mortgage payment. 

The average cost of homeowners insurance in the US is $1,428 per year, which would add $119 to your monthly payment. 

You can also check out the average property taxes in your state to get an idea of how much you might pay for this cost, but keep in mind that tax rates can vary a lot from city to city. Your mortgage lender should be able to give you an estimate based on where you’re planning to buy. 

How to calculate a mortgage payment

Prefer to do it by hand? You can calculate your monthly mortgage payment (excluding property taxes and insurance) using the following equation:

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]

“P” is your principal.

The “i” is your monthly interest rate. This is different than the interest rate you see on your mortgage documents. The lender provides the yearly interest rate, so divide that rate by 12 for this equation. If your interest rate is 4.25%, divide 0.0425 by 12 to find your monthly rate: 0.00354166%.

To find “n,” the number of months required to repay the loan, multiply the number of years by 12. If you have a 30-year mortgage, multiply 30 by 12 to get 360 months.

Once you calculate M (monthly mortgage payment), you can add in the monthly property tax and homeowners insurance payment. 

What is amortization?

Amortization refers to the process of making payments toward a debt until you’ve fully repaid it. With a mortgage, you’ll make monthly payments that are calculated in a way that allows you to pay off your balance by the end of your term while also accounting for the interest you owe. 

When you get a mortgage, you’ll receive an amortization schedule for your loan. This schedule will show you how each of your monthly payments breaks down in terms of how much you’re paying toward your principal vs. interest.

For example, say you have a $300,000 mortgage with a 6.5% interest rate. Your monthly payment would be $1,896. To determine how this payment breaks down each month, you’ll need to multiply the loan amount by your interest rate. Then, divide that number by 12 to see how much you’ll pay in interest on a monthly basis.

300,000 × 0.065 = 19,500

19,500 / 12 = 1,625

This means that on your very first mortgage payment, you’ll pay $1,625 in interest. The remaining $271 will go toward reducing your principal.

To determine how your second monthly payment breaks down, simply subtract the $271 from your principal and run the calculation again with the new loan amount.

You can use a spreadsheet tool like Excel to make it easier to calculate your full amortization schedule, or you can simply use an online amortization calculator.

How lenders decide how much house you can afford

Lenders have a responsibility to make sure they aren’t lending more than what their borrowers can afford to pay back. This is known as the ability-to-repay rule.

To determine how much you can afford to borrow, lenders will look at your income, debts, assets, employment, and credit. They want to make sure that you have the income to afford your monthly payments, and that a mortgage wouldn’t push your debt-to-income ratio (DTI) to an unacceptable level.

On conventional loans, you can’t have a DTI higher than 50%, and borrowers with lower ratios will typically get better rates. 

But just because a lender says you can afford a certain amount doesn’t mean you’ll necessarily be comfortable with the monthly payment. Think about what your budget can comfortably handle when deciding your price range. 

Tips for lowering your monthly payments

Explore different down payment options

As you play around with the calculator, you can see how different down payment amounts will ultimately impact your monthly payment. The less money you borrow, the less you’ll need to pay each month. 

However, the more you put down, the less money you’ll have left over for things like furnishing your new home or paying for repairs and maintenance. Find the right balance that gives you a sufficient down payment but also leaves you enough cash for other costs.

The benefits of shorter term loans vs. longer term loans

The longer your loan term is, the lower your monthly payment will be.

Paying back $200,000 over the course of 30 years is going to yield a much lower monthly payment than paying that same amount back over the course of 15 years. However, you’ll pay a lot more interest on the 30-year loan. This is because you’ll not only be accruing interest for a longer period of time, but longer terms also come with higher interest rates. 

If you can afford a higher monthly payment, a shorter term could be worth it if your goal is to save money overall. But if you want to keep your monthly payment as low as possible, it’s best to go with a longer term. 

Get a better rate

Rates vary among mortgage lenders, so be sure to get approved with three or four different lenders to be sure you’re getting the lowest rate possible.

You can also work on getting a higher credit score and lowering your DTI to get access to lower rates.

Buy a less expensive home

You don’t need to borrow the full amount a lender is willing to lend to you. For example, if your lender offers you a loan for $300,000 but you only borrow $270,000, you could potentially save around $200 per month.

Common mistakes to avoid

Underestimating property taxes and insurance

First-time homebuyers are often surprised by how much their taxes and insurance can raise their monthly payment amount. Property taxes in particular can be fairly expensive, often adding at least a couple hundred dollars more to the payment. 

It’s also important to understand that these costs can change every year. If your property taxes or homeowners insurance premium increase, your payment will go up as well. 

Forgetting to consider closing costs

The down payment isn’t the only thing you’ll need cash for at closing. Closing costs include lender fees, the cost of your appraisal, things you need to prepay like homeowners insurance, and other costs related to the mortgage and the home purchase.

In total, you’ll typically pay between 3% and 6% of the loan amount in closing costs.

Reasons your monthly mortgage payment could increase

Your monthly mortgage payment amount will likely change slightly over the years, and may go up over time. Two of the most common reasons for this include:

• You have an adjustable-rate mortgage (ARM): Once your ARM’s fixed-rate period is over, your rate will reset periodically, and your monthly payment could go up as a result.
• Your taxes or insurance increased: Most borrowers pay their property taxes and homeowners insurance premiums into an escrow account, which the lender pays out of on your behalf when those bills are due. If your taxes or premium have increased, so will your monthly payment.

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