Total Loan Amount: $ 0.00
Total Interest Paid: $ 0.00
Total Cost of Mortgage: $ 0.00
Mortgage Calculator Use
A mortgage calculator is an essential tool for any prospective homebuyer. It helps you estimate your monthly financial obligation before you commit to a long-term loan. By adjusting variables like the home price, down payment, and interest rate, you can see how different financial scenarios impact your monthly budget and the total cost of your home over time.
Using this tool allows you to determine how much house you can afford and understand how a higher down payment or a lower interest rate can save you thousands of dollars in interest over the life of the loan.
- Home Price
- The total purchase price of the property you are looking to buy.
- Down Payment
- The initial cash payment you make toward the purchase. A higher down payment reduces the loan amount (principal) and may eliminate the need for Private Mortgage Insurance (PMI).
- Interest Rate
- The annual interest rate charged by the lender, expressed as a percentage.
- Loan Term
- The duration of the mortgage, typically 15 or 30 years.
How It Works
The mortgage calculator uses a standard fixed-rate mortgage formula to calculate the monthly principal and interest payment. This formula accounts for the compounding effect of interest over the specified loan term.
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1 ]
- M = Total monthly payment
- P = Principal loan amount (Home Price – Down Payment)
- i = Monthly interest rate (Annual Rate / 12)
- n = Total number of months (Years x 12)
Mortgage Calculation Example
Scenario: You are purchasing a home for $400,000 with a 20% down payment. You have secured a 30-year fixed-rate mortgage at 7.0% interest.
Step-by-step solution:
- Loan Principal: $400,000 – $80,000 (20%) = $320,000
- Monthly Interest Rate: 7% / 100 / 12 = 0.005833
- Number of Months: 30 years x 12 months = 360 months
- Calculate Payment: $320,000 [0.005833(1.005833)^360] / [(1.005833)^360 – 1]
- Result: Monthly Payment = $2,128.97
Common Questions
What is included in a monthly mortgage payment?
A standard mortgage payment typically consists of four components often referred to as PITI: Principal, Interest, Taxes, and Insurance. While this calculator focuses on Principal and Interest, homeowners must also account for property taxes and homeowners insurance, which are often held in an escrow account by the lender.
How does the interest rate affect my mortgage?
Even a small change in the interest rate can significantly impact your monthly payment and the total interest you pay over the life of the loan. For example, on a $300,000 loan, the difference between a 6% and a 7% interest rate can result in over $60,000 of additional interest costs over 30 years.
Should I choose a 15-year or 30-year term?
A 15-year mortgage usually offers a lower interest rate and results in much less interest paid over time. However, it requires a significantly higher monthly payment. A 30-year mortgage provides a lower, more manageable monthly payment but costs much more in total interest. The best choice depends on your monthly cash flow and long-term financial goals.