How to Calculate Your Mortgage Payment

The calculation behind mortgage payment is complex, but Bankrate’s mortgage calculator makes this math problem quick and easy.

Firstly, next to the space labeled “Home Price”, enter the price (if you are buying) or the current value of your home (if you are refinancing).

In the “Down Payment” section, type in the amount of your down payment (if you are buying) or the amount of equity you have available (if you are refinancing). The down payment is the cash amount you pay upfront for the home, and home equity is the value of the home, from which any outstanding amount is subtracted. You can enter either a dollar amount or a percentage of the purchase price you are putting down.

Next, you will see “Loan Length”. Choose a term – typically 30 years, but maybe 20, 15 or 10 – and our calculator adjusts the repayment schedule.

Finally, in the “Interest Rate” box, enter the rate you want to pay. Our calculator defaults to the current average rate, but you can adjust the percentage. Your rate will vary depending on whether you are shopping or refinancing.

As soon as you enter these figures, a new amount of principal and interest will appear on the right. Bankrate’s calculator also estimates property tax, homeowner’s insurance and homeowner’s association fees. When you’re shopping for a loan, you can edit these amounts or ignore them – they can be included in your escrow payment, but they don’t affect your principal and interest when you’re figuring out your options.

Specific Costs Included in Mortgage Payment

The main part of your mortgage payment is principal and interest. The principal is the amount you borrowed, while interest is the amount you pay to the lender for borrowing. Your lender may also collect an additional amount each month to put into escrow, that money which the lender (or servicer) typically pays directly to local property tax collectors and your insurance carrier.

Principal: This is the amount that you borrowed from your lender. Interest: This is what your lender charges you for lending you money. Interest rates are expressed as annual percentages. Property Tax: Local authorities assess an annual tax on your property. If you have an escrow account, then each monthly mortgage payment includes about one-twelfth of your annual tax bill. Homeowner’s Insurance: Your insurance policy can cover damage and financial loss from fire, storms, theft, a tree falling on your home and other hazards. If you live in a flood zone, you’ll have an additional policy; if you’re in hurricane alley or an earthquake-prone country, you might have a third insurance policy. Like property tax, each month you pay one-twelfth of your annual insurance premium, and your lender or servicer pays the premium when it’s due. Mortgage Insurance: If your down payment is less than 20 percent of the home purchase price, then you’ll likely be required to carry mortgage insurance, which is also added to your monthly payment.

Mortgage payment formula

Want to figure out how much your monthly mortgage payment will be? For the mathematically inclined, here’s a formula to help you calculate mortgage payments manually:

Equation for mortgage payments

Here are the symbols and their meanings:

  • M: The total monthly mortgage payment.
  • P: The principal loan amount.
  • r: Your monthly interest rate. Lenders provide you an annual rate so you’ll need to divide that figure by 12 (the number of months in a year) to get the monthly rate. If your interest rate is 5 percent, your monthly rate would be calculated as follows:
annual_interest_rate = 0.05
monthly_interest_rate = annual_interest_rate / 12
# monthly_interest_rate = 0.004167
  • n: Number of payments over the loan’s lifetime. Multiply the number of years in your loan term by 12 (the number of months in a year) to get the number of payments for your loan. For example, a 30-year fixed mortgage would have 360 payments, calculated as follows:
loan_term_years = 30
number_of_payments = loan_term_years * 12
# number_of_payments = 360

How This Formula Can Help You Determine How Much House You Can Afford

This formula can help you see how much house you can afford. Using our mortgage calculator can make your job easier and help you determine if you are investing enough money or if you should adjust your loan term.

It’s always a good idea to rate-shop with multiple lenders to ensure you’re getting the best deal.

How a Mortgage Calculator Can Help

Once you’ve determined your housing budget, it’s important to determine your monthly home payment – it will likely be your largest recurring expense. As soon as you start shopping for a purchase loan or refinancing, Bankrate’s mortgage calculator allows you to estimate your mortgage payment. To study various scenarios, just change the details entered in the calculator. The calculator can help you make decisions:

  • Loan Term: If your budget is fixed, a 30-year fixed-rate mortgage is probably the right option. These loans come with lower monthly payments, although you will pay more interest over the loan. If there’s some room in your budget, a 15-year fixed-rate mortgage will reduce the total interest you pay but will increase your monthly payment.
  • ARM: As rates rise, choosing an adjustable-rate mortgage (ARM) can be attractive. Initial rates for ARMs are typically lower than their traditional counterparts. A 5/6 ARM – which has a fixed rate for five years, then adjusts every six months – could be the right option if you plan to stay in your home for a few years. However, pay full attention to how much your monthly mortgage payment can change after the initial rate expires.
  • Spending Beyond Your Means: The mortgage calculator provides an overview of how much you can expect to pay each month including tax and insurance.
  • Down Payment: While 20 percent is considered a standard down payment, it’s not required. Many lenders accept as little as 3 percent down.
  • Determining How Much House You Can Afford: If you’re unsure what portion of your income should go towards housing, follow the tried-and-true 28/36 percent rule. Many financial advisors believe that you should not spend more than 28 percent of your gross income on housing costs such as rent or mortgage payments, and that you should not spend more than 36 percent of your gross income on total debt, including credit cards, student loans, medical bills and the like. Here’s an example of what it looks like:

For someone who earns $60,000 per year. That’s a gross monthly income of $5,000. $5,000 x 0.28 = $1,400 total monthly mortgage payment (PITI)

The total monthly mortgage payment – including principal, interest, tax and insurance – should not exceed $1,400 per month. This is a maximum loan amount of approximately $253,379. While you may qualify for a mortgage with up to 50 percent debt-to-income (DTI) ratio for some loans, spending such a large percentage of your income on debt will not leave enough room in your budget for other living expenses, discretionary spending, retirement, emergency savings and so on. When lenders pre-approve you for a loan they do not take those budget items into account so you need to include those expenses in your housing affordability picture. Once you know what you can afford to spend, you can take the next financially sound step. The last thing you want to do is take out a 30-year home loan that is too expensive for your budget even if a lender is willing to lend you the money. Bankrate’s “How much house can I afford?” calculator will help you understand the numbers.

How to Reduce Your Monthly Mortgage Payment

If the monthly payment you see in our calculator seems a bit out of reach, you can try some strategies to lower the hit. Play around with some of these:

  • Choose a Long Loan: With a longer term, your payment will be lower (but you will pay more interest over the life of the loan).
  • Spend Less on the House: Borrowing less results in a lower monthly mortgage payment.
  • Avoid PMI: A down payment of 20 percent or more (or in the case of a refi, 20 percent or more equity) gets you out of the private mortgage insurance (PMI) zone.
  • Shop for a Lower Interest Rate: However, be aware that for some ultra-low rates, you’ll have to pay points, an upfront cost.
  • Make a Larger Down Payment: This is another way to reduce the size of the loan.

Next Steps

A mortgage calculator is a springboard to help you estimate your monthly mortgage payment and understand what it includes. After crunching the numbers, your next step is:

  • Get Pre-approved by a Mortgage Lender: If you’re shopping for a home, this is essential.
  • Apply for a Mortgage: After your employment, income, credit and finances are checked by the lender, you’ll have a better idea of how much you can borrow. You’ll also clearly know how much money you’ll need to bring to the closing table.
Loan Rates Table
Loan Type Purchase Rates Refinance Rates
30-Year Loan 30-Year Mortgage Rates 30-Year Refinance Rates
20-Year Loan 20-Year Mortgage Rates 20-Year Refinance Rates
15-Year Loan 15-Year Mortgage Rates 15-Year Refinance Rates
10-Year Loan 10-Year Mortgage Rates 10-Year Refinance Rates
FHA Loan FHA Mortgage Rates FHA Refinance Rates
VA Loan VA Mortgage Rates VA Refinance Rates
ARM Loan ARM Mortgage Rates ARM Refinance Rates
Jumbo Loan Jumbo Mortgage Rates Jumbo Refinance Rates

Mortgage Calculator: Optional Uses

Most people use a mortgage calculator to estimate payments on a new mortgage, but it can be used for other purposes as well. Here are some other uses:

Planning to Pay Off Your Mortgage Early

Use the “Extra Payments” functionality of Bankrate’s mortgage calculator to find out how you can shorten your term and net big savings by paying extra money towards your loan’s principal each month, every year or even just one time.

To calculate savings, click on the “Amortization / Payment Schedule” link and enter a hypothetical amount in one of the payment categories (monthly, yearly or one-time), then click on “Apply Extra Payments” to see how much interest you’d end up paying and what your new payoff date would be.

Deciding if an ARM is Worth the Risk

The lower initial interest rate of an adjustable-rate mortgage, or ARM, can be tempting. While an ARM may be appropriate for some borrowers, others may find that the lower initial interest rate won’t cut their monthly payments as much as they think.

To estimate how much you’ll actually save initially, try entering the ARM interest rate into the mortgage calculator, leaving the term at 30 years. Then, compare those payments to the payments you’d get when you enter the rate for a conventional 30-year fixed mortgage. Doing this might confirm your initial hopes about the benefits of an ARM – or give you a reality check about whether the potential plusses of an ARM really outweigh its risks.

Finding Out When to Get Rid of Private Mortgage Insurance

You can use the mortgage calculator to determine when you’ll have 20 percent equity in your home. This percentage is the magic number for requesting that a lender wave private mortgage insurance requirement.

If you paid less than 20 percent down when you purchased your home, you’re probably paying an additional fee every month for private mortgage insurance (PMI). Once you have 20 percent equity, this charge is removed, meaning more money in your pocket.

Simply enter your original mortgage amount and the date you closed, and click “Show Amortization Schedule”. Then, multiply your original mortgage amount by 0.8 and match the result to the closest number on the far right column of the amortization table to find out when you’ll reach 20 percent equity.

Explaining the Terms

Using an online mortgage calculator can help you quickly and accurately predict your monthly mortgage payment with just a few pieces of information. It can also show you the total amount of interest you’ll pay over the life of your mortgage. To use this calculator, you’ll need the following information:

Home Price

This is the dollar amount you expect to pay for a home.

Down Payment

This is the amount of money you’re putting down yourself on the house. A minimum down payment typically helps you avoid mortgage insurance.

Loan Amount

If you’re getting a mortgage to buy a new home, you can find this number by subtracting your down payment from the home’s price. If you’re refinancing, this number will be the outstanding balance on your mortgage.

Mortgage Term (Years)

This is the length of the mortgage you’re considering. For example, if you’re buying a home, you may choose a mortgage loan that lasts 30 years, which is the most common, as it allows for lower monthly payments by stretching the repayment period over three decades. On the other hand, a homeowner who is refinancing may opt for a loan that lasts 15 years, which is another common mortgage term. This allows borrowers to save money in the long run by paying less in total interest. However, monthly payments on a 15-year mortgage are higher than those for a 30-year mortgage, so it could be more expensive for your household budget, especially for first-time homebuyers.

Interest Rate

Estimate the interest rate on a new mortgage by checking Bankrate’s mortgage rate tables for your area. Once you have a projected rate (your real-life rate may be different depending on your overall credit picture), you can plug it into the calculator.

Mortgage Start Date

Select the month, day and year when your mortgage payments will start.

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