Estimate your monthly mortgage payment using our free mortgage calculator. Change inputs like the interest rate, price, term of the loan in order to see the impacts these changes have on your estimated monthly payment.
How to Use a Mortgage Calculator
You can compare calculations in seconds with a mortgage calculator, but first there are a few things you should know about how these handy tools work.
Understanding Inputs
When using a mortgage calculator, you’ll find that there are several different fields to enter in order to get an accurate calculation, including:
- Home price
- Down payment
- Interest rate
- Mortgage term
- PMI (Private Mortgage Insurance)
What are these inputs and how do they affect your mortgage calculation? The first two are pretty self-explanatory. You obviously need to know what you’re paying for a home so you can break down the total price into monthly payments. And of course, the down payment will remove a sizeable chunk of the total price, lowering your monthly payments.
The interest rate is the annual cost of borrowing the money to purchase your home and is charged by your lender. Even changing the rate by a couple of points could significantly impact your monthly and overall payments, and this is why having a mortgage calculator to instantly do the computations for you is so handy. You’ll also need to enter the mortgage term, or the length of your loan, so you know how many monthly payments to spread the cost over.
You’ll also see a field to enter PMI, or private mortgage insurance. Not all homeowners will have to pay PMI. Generally, banks require it only when buyers offer a down payment of less than 20% of the home’s purchase price. In addition, you may simply want to calculate this cost separately, since it can be eliminated when you do hit the 20% mark. However, if you know you’ll have to pay it and you want to factor in the cost to make sure you can afford your monthly payments, you’ll need to look for a mortgage calculator that includes PMI.
Why Use a Mortgage Calculator?
The very best reason to use a mortgage calculator is convenience. When you input different terms, rates, down payments, and so on into an online mortgage calculator, you can quickly and easily get an idea of how to arrange for a monthly mortgage payment you can afford.
Just because you qualify for a loan doesn’t mean the monthly payments are right for your budget. However, you might find that you can arrange more manageable payments by adjusting your down payment, a lower interest rate, or choosing a longer loan term, just for example. A mortgage calculator is the tool that helps you work it all out.
Mortgage Terms Defined
Adjustable Rate Mortgage (ARM):
ARM’s are mortgages that have a low interest rate for an introductory period, but then the interest rate fluctuates after that. For example, a “5/1 30-year ARM” will keep the same interest rate for the first five years. Afterwards, the rate can change every year for the remaining 25 years of the loan.
Amortization:
Simply a month-by-month breakdown of how much you’ll pay in principal and interest until the loan is paid off.
Annual Percentage Rate (APR):
APR is the real interest rate you pay every year, which includes the headline interest rate plus any points, fees or other charges associated with the loan.
Appraisal:
An appraisal is a professional estimate of the home’s fair market value based upon it’s physical condition and the value of comparable (“comp”) homes nearby. Usually paid for by the buyer.
Closing/Settlement Costs:
Closing costs are the sum of all taxes, inspections, first month’s payment, agent commissions and other loan related fees that need to be paid before the deal can be closed. Costs are split between the seller and buyer, though which party pays for some items is negotiable.
Debt to Income (DTI) ratio:
Debt-to-income is one of the most important calculations used by lenders to determine how risky a loan is. They take your total current debt plus the expected mortgage payments and divide by your income. The higher this ratio, the less likely you are to qualify for a good interest rate, regardless of your credit score. Most private lenders want to see this rate under 33%.
Discount Points:
Many lenders offer the chance to pay part of the interest rate upfront, called “points,” if you want to lower your long-term interest rate. For example, if you qualify for a 6% rate on a 30-year, $200,000 mortgage and you pre-pay two percentage points now ($4,000), then you’d only pay 4% interest for the next 30 years.
Document Recording/Transfer Charges:
These are state and local taxes by another name and included in your closing costs. Usually paid for by the seller.
Down Payment:
Your down payment is how much of the loan amount you have to pay upfront to qualify for the mortgage. Generally, unless taking advantage of government programs like VA or FHA home loans, you’ll need to pay 20% upfront to avoid any extra PMI surcharges.
Escrow:
Your property taxes and homeowner’s insurance are collected in monthly installments and then paid out at the end of the year through the escrow account managed by the lender.
Equity:
Equity is the difference between the home’s value and how much you owe on the mortgage. This difference is what you can borrow against later in a Home Equity (HELOC) loan.
Fixed Rate Mortgage:
A 15 or 30 year mortgage with a single unchanging interest rate for the entire life of the loan.
Homeowner’s Insurance:
Before closing, you’ll have to have a homeowner’s insurance policy listing the lender as the payee in place. You can shop around for this and don’t have to take the lender’s recommended insurer.
Interest Rate:
The headline interest rate is the simple yearly percentage fee required to borrow money for the mortgage. This is usually lower than the APR rate.
Origination Fees:
Origination fees are extra charges the lender adds into the buyer’s closing costs to cover their processing of the loan.
Principal:
Principal is the amount of the loan, not including interest or escrow payments. You can also make additional monthly principle payments to reduce your total mortgage costs down the road.
Private Mortgage Insurance (PMI):
In most cases, if you can’t make a 20% down payment, the lender will require you to pay a monthly premium for extra mortgage insurance. For a fee, PMI serves in place of a down payment and guarantees loan repayment if you default, but you only have to pay the premiums until the loan is worth 80% of the home’s value.
Title Insurance:
Title insurance protects you and your lender from having to pay unexpected liens or other unknowns arising when transferring the home’s ownership. This is part of the closing costs and usually paid for by the seller.