How to Use the Mortgage Calculator
To use our home loan payment calculator, key in some information about the home you’d like to buy and your expected loan information. The calculator will estimate your monthly mortgage payment, including principal and interest plus taxes and insurance costs.
Have the following information handy:
- The purchase price of the home
- Your down payment
- Your expected loan term and interest rate
The monthly payment calculator will use estimates for your property tax rate and annual homeowners insurance. If you know the exact figures, include them for a more customized mortgage calculation.
You can also choose to include private mortgage insurance (PMI) in your calculation. Lenders typically require PMI if your down payment is less than 20% of the home’s purchase price
What goes into calculating a monthly mortgage page
The basic mortgage calculation requires four pieces of information:
- The cost of the home
- The down payment
- The interest rate
- The loan term (in months)
The loan’s monthly principal and interest can be calculated from this information.
Added to this are the following costs:
- Homeowners insurance premium. Most policies are billed annually, so the calculator divides by 12 to get a monthly cost.
- Annual property taxes. The tax rate is based on an assessment of the property’s value. Again, this is billed annually, so the calculator divides by 12 to get a monthly cost.
- Private mortgage insurance (PMI). If the down payment amount is less than 20%, the lender may require PMI if the loan amount is more than 80% of the purchase price.
The payment calculation may also include a homeowners association (HOA) dues. HOA fees are standard in properties with common spaces, such as condominiums or neighborhoods with pools, parks and other common space amenities. These homeownership fees pay for maintenance and repairs to these spaces.
How much can you afford based on purchase price?
Aside from the monthly mortgage payment (including principal and interest, taxes, insurance, and possible HOA fees), a homeowner’s budget should account for utilities, routine maintenance, and emergency repairs. Many new homeowners are surprised to learn the true cost of owning a home.
Here’s a rule of thumb to help you get a sense of what kind of home you can afford. Multiply your gross monthly income by 28%. The result is the maximum you should spend on your monthly payment for housing (mortgage principal, interest, taxes, and insurance). So if you earn $7,500 per month gross, you should spend no more than $2,100 on housing.
That 28% may not seem like much. But as the total costs of homeownership add up — and add to expenses such as making payments on other loans, transportation, and entertainment — you’ll be glad you have an extra cushion of money in your monthly budget.
Tips to lower monthly mortgage payments
Looking for ways to save money on your monthly mortgage payment? Follow these tips:
Improve your credit score and debt-to-income (DTI) ratio
Two of the most important factors that determine your mortgage interest rate are your credit score and DTI. So check your credit report and make sure there are no inaccuracies — report any to the credit bureau. Work to pay down loans and decrease your overall debt. Finally, look for ways to increase your income, perhaps by picking up a side gig or working extra hours.
Save for and make a bigger down payment
Making a larger down payment means you’d be financing less in a mortgage and will likely pay less each month. And if you can make a down payment of at least 20%, you’d likely avoid paying private mortgage insurance (PMI). Both can have a significant and positive impact on lowering your monthly mortgage loan payment.
If you can’t make a 20% down payment, look for a no-PMI loan
Some lenders offer no-PMI programs, often targeted at first-time homebuyers. They may also provide lender-paid PMI in exchange for a higher interest rate (always do your math to ensure it’s a good deal).
Shop around for homeowners insurance
Get quotes from at least three insurance companies — you may find that rates and coverage amounts differ significantly between carriers.
Mortgage payment calculator glossary of terms
Closing costs are a series of fees that must be paid to complete a real estate deal. These fees cover things such as escrow costs, title searches, appraisals, and legal fees. Closing costs typically are anywhere from 3% to 6% of the cost of the home. For more insights, checkout this article on understanding closing costs.
Interest is a dollar amount charged by the mortgage lender as a fee for its services. It’s calculated as a percentage (the interest rate) of the loan value and included in the monthly mortgage payment.
A loan to purchase real estate.
The principal is the amount of money borrowed in a loan.
Private mortgage insurance (PMI)
A lender may buy private mortgage insurance if the borrower makes only a minimal down payment. As these are considered “riskier” loans, PMI protects the lender financially in the event of default. PMI premiums are passed on to the borrower and included with the monthly mortgage payment.
The homeowner pays property tax to the local government. The amount of tax is based on the local tax rate and an assessment of the property’s value.
This information is provided for general informational purposes. All transactions are subject to credit approval. Contact a loan officer for a custom quote.