Mortgage Payment Calculator
Total Monthly Payment
| Principal & Interest: | $0.00 |
| Property Tax: | $0.00 |
| Home Insurance: | $0.00 |
| Loan Amount: | $0.00 |
| Total Interest Cost: | $0.00 |
Understanding Your Mortgage Calculation
Purchasing a home is likely the largest financial decision you will make in your lifetime. Understanding exactly how your monthly mortgage payment is calculated is crucial for budgeting and financial planning. This calculator breaks down the PITI (Principal, Interest, Taxes, and Insurance) to give you a clear picture of your monthly obligations.
The 4 Pillars of a Mortgage Payment (PITI)
Your monthly payment is typically composed of four distinct parts. Understanding these can help you identify where you might be able to save money:
- Principal: This is the portion of your payment that goes directly toward paying down the loan balance. In the early years of a mortgage, this amount is small, but it grows over time as you pay off interest.
- Interest: This is the cost of borrowing money. With a fixed-rate mortgage, your interest rate stays the same, but the amount of interest you pay in dollars decreases every month as your principal balance lowers.
- Taxes: Property taxes are assessed by your local government to fund public services. Lenders typically collect this monthly and hold it in an escrow account to pay the bill when it's due.
- Insurance: Homeowners insurance protects your property against damage. Like taxes, this is usually collected monthly into an escrow account.
How Interest Rates Impact Affordability
Even a small fluctuation in interest rates can significantly impact your buying power. For example, on a $300,000 loan, the difference between a 6% and a 7% interest rate can increase your monthly payment by nearly $200 and cost you tens of thousands of dollars over the life of the loan. It is often wise to shop around with multiple lenders to ensure you are getting the most competitive rate.
The Role of the Down Payment
Your down payment reduces the total loan amount, which lowers your monthly Principal and Interest payment. Furthermore, putting down at least 20% of the home's purchase price typically allows you to avoid Private Mortgage Insurance (PMI), which is an extra fee charged by lenders to borrowers with lower equity. This calculator assumes a standard loan structure; if your down payment is under 20%, remember to budget an additional 0.5% to 1% of the loan amount annually for PMI.
Using This Calculator for Budgeting
Financial experts generally recommend that your total housing costs (mortgage, taxes, and insurance) should not exceed 28% of your gross monthly income. Use the "Total Monthly Payment" figure generated above and divide it by your monthly income before taxes. If the result is under 0.28, you are in a healthy range for mortgage affordability.