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Why Mortgage Payments Matter

Before you start house hunting, you need to know how much house you can afford. Use our free mortgage calculator to get an idea of what your monthly mortgage payment could look like.

Components of a Mortgage Payment

A mortgage calculator can help you figure out how much house you can afford 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. Business Insider's free 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.

Other mortgage costs to consider

Your monthly principal and interest payments aren't the only costs you'll pay related to your mortgage.

Upfront costs

Up front, you'll have your closing costs, which can vary depending on your lender and the details of your loan. You'll also pay your down payment up front at closing.

Ongoing costs

On an ongoing basis, you'll need to pay for homeowners insurance and property taxes. If you get a conventional loan with a low down payment, you'll be required to pay for private mortgage insurance (PMI) as part of your monthly payment. If you live in a neighborhood with a homeowners association, you'll also need to pay your HOA dues.

Loan-specific costs

Different types of mortgages come with their own sets of costs as well. FHA loan borrowers will pay both an upfront and annual mortgage insurance premium. VA loan borrowers will pay the VA funding fee, and USDA loan borrowers will pay the USDA guarantee fee.

How a Mortgage Calculator Works

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.

Benefits of Using a Mortgage Calculator

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 of 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 U.S. 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 much PMI can cost

PMI is required on conventional loans with a loan-to-value ratio above 80%. This means that if you put down less than 20%, you'll likely need to pay for mortgage insurance.

PMI protects the lender, not the borrower. Mortgages with high LTV ratios have a higher risk of default, so PMI covers the lender's losses if a borrower stops making payments.

Freddie Mac says that PMI typically costs between $30 and $70 a month for every $100,000 you borrow. So on a $300,000 mortgage, for example, your monthly PMI premium could cost between $90 and $210, depending on your credit score and exactly how much you put down. People with higher credit scores and larger down payments generally pay less for PMI.

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.

Equation for how to calculate a mortgage payment

Alyssa Powell/Insider

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 to allow 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.

Understanding mortgage preapproval

Getting a mortgage preapproval letter can help you get a better idea of how much you can afford in the eyes of the mortgage lender. With preapproval, the lender takes a precursory look at your finances to see how much you could qualify for. But the process can vary among lenders.

Some lenders may rely on self-reported income and asset information, while others may ask for documentation showing what your financial situation looks like and do a hard credit inquiry. The more thorough a lender's process is, the more likely they'll be able to give you an accurate picture of how much you can afford to borrow.

It's a good idea to use a mortgage calculator to estimate how much you can afford before you start the preapproval process. That way, you'll have a realistic idea of what fits your budget and will be less tempted to borrow more than you can handle if the lender approves you for a larger loan.

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.

See if you qualify for down payment assistance

If you're having trouble coming up with your down payment on your own, see what down payment assistance is available to you. Many lenders offer grants or loans to help borrowers with their down payments. Local nonprofits or your state's housing finance agency may be able to help as well.

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 save around $200 a month.

Use discount points

Discount points let you permanently buy down your mortgage interest rate. One point costs 1% of your loan amount and will typically lower your rate by a quarter of a percentage point. Points can be purchased in smaller or larger increments as well.

Points are paid for as part of your closing costs. They can be worth buying if you plan to stay in your home long enough that you're able to recoup what you initially paid.

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 premiums 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.

Using the amount the lender approves you for to set your budget

It's easy to assume that if a lender approves you for a certain loan size, it's safe to borrow the full amount. But your lender is using its own math to figure out what you can afford to borrow, and it's not taking your individual budget into account. When setting your price range, be sure to think about how it translates into a monthly payment.

A popular guideline is the 28/36 rule, which recommends spending no more than 28% of your gross monthly income on housing, and no more than 36% on total debt payments. But ultimately, your homebuying budget should be based on what works for your finances, and you should avoid taking on a larger monthly payment than you can afford.

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 increases, so will your monthly payment.

Real-Life Example

Our free mortgage calculator can give you an estimate of how much you might pay each month for a mortgage based on the home price, the size of your down payment, the loan term length, and your interest rate.

Conclusion

Whether $2,000 a month is too much for a mortgage depends on your individual budget. If you're aiming to keep your mortgage payment to 28% of your gross monthly income (a popular rule of thumb), you'd need to make around $7,200 a month to afford a $2,000 mortgage payment. You can use our simple mortgage calculator to see how much you can borrow to achieve this monthly payment.

Mortgage calculator with extra payments

Why Mortgage Payments Matter

Components of a Mortgage Payment

How a Mortgage Calculator Works

Benefits of Using a Mortgage Calculator

Real-Life Example

Conclusion

Mortgage Calculator | Free Mortgage Calculator | Simple Mortgage Calculator

Mortgage Calculator Free | Simple Mortgage Calculator

Understanding Your Mortgage Calculator Results

Home Price: The amount you expect to pay for the home, influenced by size, location, and market conditions.

Loan Terms: The length of your mortgage (10, 15, 20, 25, or 30 years), affecting total interest and monthly payments.

Loan APR: The annual percentage rate, combining interest rate, lender fees, and closing costs to show the true borrowing cost.

Property Taxes: Taxes based on your home's value and location, varying yearly.

Homeowners Insurance: Protection for your home against risks like fires and theft, with costs varying by location and policy.

HOA Fees: Fees for maintenance and upkeep in planned communities, paid annually or monthly.

Down Payment: Your initial payment towards the home, influencing your monthly payments—the higher the down payment, the lower the monthly cost.

How Much Home Can I Afford?

Debt-to-Income Ratio (DTI): This is the percentage of your monthly income that goes toward debt payments, including credit cards, loans, and your future mortgage. Lenders prefer a DTI between 36% and 50%.

Steady Income: A consistent income is crucial for budgeting and saving for a home. It also shows lenders you can repay the loan. Prove your income with bank statements, pay stubs, or W-2s.

Payment History: A history of on-time bill payments signals reliability to lenders and helps you understand your ability to manage a mortgage.

Down Payment: Deciding your down payment is crucial. A higher down payment increases mortgage approval chances, reduces borrowing, and improves terms. Minimum requirements vary by loan type, so explore your options.

Credit Score: Your credit score, influenced by credit types, age, total debt, and recent debt, significantly affects your home loan terms. It's a key factor in determining what you can afford.

How to Lower Your Monthly Mortgage Payment

Avoid PMI: A down payment of at least 20% eliminates private mortgage insurance, especially important for FHA loans.

Buy a Smaller Home: A smaller loan means a lower purchase price and reduced monthly payments.

Extend Loan Term: Longer loan terms lower monthly payments but increase total interest paid.

Secure a Lower Interest Rate: A larger down payment can also lower your interest rate.

Why Might My Mortgage Payments Increase?

Adjustable-Rate Mortgage (ARM): After the initial fixed period, the interest rate can fluctuate based on market conditions, such as the Prime Rate or U.S. Treasury bill rates.

Increased Property Taxes: Property taxes can rise due to home improvements, neighborhood enhancements, or local government needs.

Higher Homeowners Insurance: Insurance premiums can increase due to claims, home improvements, added risk factors (like a pool), or external factors like inflation and construction costs.

Common Mortgage Types: Which is Right for You?

Conventional Loan: Not government-insured, offering flexible terms and conditions. Typically requires a down payment as low as 3%.

FHA Loan: Insured by the Federal Housing Administration, ideal for those who don't qualify for Conventional loans.

VA Loan: Guaranteed by the Department of Veterans Affairs, exclusively for active-duty military, Veterans, and certain spouses. Benefits include lower interest rates, no down payment, and no monthly mortgage insurance.

Browse our mortgage loan options page for more information on the loan types we offer.

Additional Uses for Our Mortgage Calculator

Plan Early Payoff: Determine the feasibility of paying off your mortgage early by entering additional monthly payments.

Evaluate ARMs: Compare initial savings of an Adjustable-Rate Mortgage (ARM) with a Conventional Fixed-Rate Mortgage to see if an ARM suits your needs.

Eliminate PMI: Discover when you can remove Private Mortgage Insurance (PMI) by using the amortization schedule. PMI is typically required with less than a 20% down payment but can be canceled once you exceed 20% equity.

Annual fixed interest rate for this mortgage. Please note that the interest rate is different from the Annual Percentage Rate (APR), which includes other expenses such as mortgage insurance, and the origination fee and or point(s), which were paid when the mortgage was first originated. The APR is normally higher than the simple interest rate.

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Mortgage rates rise as uncertainty surrounds Trump policy ideas

Home buyers may have to wait until 2025 for mortgage rates to decrease. The average 30-year mortgage rate rose to 6.84% last week, continuing its consistent weekly increase since September.

The moderate housing market during the past two years doesn’t yet appear to be gathering major momentum. When the Fed began slashing rates in September, many hoped it would be the catalyst to get home buying moving again.

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