Mortgage Calculator

How the mortgage calculation works

The monthly payment on a fixed-rate mortgage is determined by a standard amortization formula:

M = P × [ r(1+r)ⁿ ] ÷ [ (1+r)ⁿ − 1 ]

• M — monthly payment (principal + interest)
• P — loan principal: the amount you're borrowing, which is the property price minus your down payment
• r — monthly interest rate (the annual rate divided by 12)
• n — total number of monthly payments (years × 12)

Worked example using the calculator's default values ($300,000 home, $30,000 down, 35-year term, 3.2% APR):

• P = $300,000 − $30,000 = $270,000
• r = 0.032 ÷ 12 = 0.002667
• n = 35 × 12 = 420 payments
• (1 + r)ⁿ ≈ 3.061
• M = 270,000 × (0.002667 × 3.061) ÷ (3.061 − 1) ≈ $1,069 per month

That's the figure the calculator above returns in the "Monthly Repayment" box. The formula assumes a fixed rate. Adjustable-rate mortgages (ARMs) re-calculate periodically as the rate resets.

PITI: what's actually in your monthly payment

Most lenders quote you the figure above — principal and interest (P&I) only. But the amount that leaves your bank account each month is usually larger because it includes PITI:

• Principal — pays down the loan balance. Front-loaded toward interest in early years; flips toward principal later in the amortization schedule (see the chart above).
• Interest — cost of borrowing. On a 30-year loan at 6.5%, you'll pay roughly 1.3× the principal in total interest over the life of the loan.
• Taxes — property taxes, typically held in an escrow account by the lender and paid on your behalf. Varies massively by state, from around 0.3% of home value in Hawaii to over 2.5% in New Jersey.
• Insurance — homeowners insurance is always required by lenders. Private Mortgage Insurance (PMI) is added when your loan-to-value ratio exceeds 80% (i.e., down payment under 20%), and typically costs 0.5–1.5% of the loan annually until LTV drops below 78–80%.

This calculator returns P&I only. Plan for PITI to be roughly 20–40% higher than the P&I figure depending on your local tax rate and whether PMI applies.

15-year vs 30-year vs 20-year: how to choose

Loan term is the most consequential decision after the loan amount itself. Comparing a $270,000 loan across three terms at roughly current rates:

• 30-year: lowest monthly payment, but you pay roughly twice the principal in total interest at typical rates.
• 20-year: middle ground — monthly payment about 20% higher than 30-year, but total interest cut by roughly a third.
• 15-year: highest monthly payment (around 50% higher than 30-year), but total interest can be less than a third of the 30-year equivalent. 15-year rates also typically run 0.5–0.75% below 30-year rates, compounding the savings.

The decision usually comes down to three questions:

1. Cash flow: can you comfortably afford the 15-year payment even if income drops temporarily?
2. Opportunity cost: could the difference between the 15-year and 30-year payment earn more invested? Historically, broad US stock market returns have outpaced typical mortgage rates — but historical isn't guaranteed.
3. Discipline: a 30-year mortgage with voluntary extra principal payments offers flexibility; a 15-year forces the savings.

Down payment, LTV, and PMI

Your loan-to-value (LTV) ratio is the loan amount divided by the property value. It drives two important things:

• Whether you pay PMI. LTV above 80% (down payment under 20%) almost always triggers Private Mortgage Insurance. PMI is removable once LTV drops below 78–80%, either through principal payments or appreciation.
• The interest rate you're offered. Higher LTV means more risk to the lender, often resulting in a slightly higher rate — though credit score has a bigger effect.

A larger down payment reduces the loan amount, the monthly payment, the total interest paid, and removes PMI. But it isn't always the right move — draining your emergency fund to hit 20% leaves you exposed to job loss or unexpected costs. Many first-time buyers are comfortable with 5–10% down via FHA or conventional loans with PMI, planning to refinance out of PMI later.

What lenders look at beyond the math

The calculator tells you what you'll pay if approved. Whether you'll actually be approved depends on several other factors:

• Debt-to-income ratio (DTI): your monthly debt payments (including the new mortgage) divided by gross monthly income. Most conventional lenders cap DTI at 43% (the qualified-mortgage threshold); some go higher. Check yours with the debt-to-income ratio calculator.
• Credit score: determines which rate tier you're offered. 740+ usually gets the best rates; below 620 limits options significantly. The gap between a 620 and 760 credit score can mean 0.5–1% in rate, which compounds to tens of thousands over a 30-year loan.
• Employment history: lenders prefer 2+ years of consistent income, ideally in the same field. Self-employed borrowers typically need 2 years of tax returns.
• Cash reserves: money left in savings after the down payment and closing costs. Some loan types require 2–6 months of PITI in reserves.

Sources & references

The methodology above reflects standard mortgage amortization as documented by:

• Freddie Mac Primary Mortgage Market Survey — weekly survey of average US mortgage rates, the industry's standard rate benchmark since 1971.
• Consumer Financial Protection Bureau (CFPB) — Owning a Home — official US government resource on mortgage products, qualification standards, and disclosures.