How to Use the bankrate mortgage calculator
Using this bankrate mortgage calculator is the first step toward understanding your home buying power. By entering a few key details about your financial situation and the property you are interested in, you can instantly see what your monthly obligation might look like. This tool helps you budget effectively and compare different loan scenarios without needing to speak to a lender first.
To get the most accurate results, ensure you are using current market interest rates and a realistic down payment amount. You can experiment with different loan terms to see how they impact your monthly cash flow versus the total interest paid over the life of the loan.
- Home Price
- The total purchase price of the home you wish to buy.
- Down Payment
- The amount of cash you pay upfront. A higher down payment reduces your loan amount and typically helps you secure a better interest rate.
- Interest Rate
- The annual interest rate charged by the lender for the mortgage. This is expressed as a percentage.
- Loan Term
- The number of years you have to repay the loan. The most common terms are 15 and 30 years.
The Math Behind Mortgage Calculations
Mortgage payments are calculated using an amortization formula. This formula ensures that by the end of your term, both the principal (the amount you borrowed) and the interest accrued are fully paid off. The formula for a monthly payment is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1 ]
- M: Total monthly payment.
- P: Principal loan amount (Home Price minus Down Payment).
- i: Monthly interest rate (Annual Rate divided by 12 months).
- n: Total number of monthly payments (Years multiplied by 12).
Mortgage Calculation Example
Example: Imagine you are buying a home for $400,000 with a 20% down payment ($80,000) at an interest rate of 6% for 30 years.
Step-by-step solution:
- Loan Principal (P) = $400,000 – $80,000 = $320,000
- Monthly Interest (i) = 6% / 100 / 12 = 0.005
- Number of Months (n) = 30 * 12 = 360
- Calculate: M = 320,000 [ 0.005(1.005)^360 ] / [ (1.005)^360 – 1 ]
- Result = $1,918.56 per month
Important Factors to Consider
What is PMI?
Private Mortgage Insurance (PMI) is usually required if your down payment is less than 20% of the home price. This protects the lender if you default on the loan. While this bankrate mortgage calculator focuses on principal and interest, remember to account for PMI in your total monthly budget if you are putting down less than 20%.
Property Taxes and Insurance
The monthly principal and interest payment is only one part of homeownership costs. Most lenders require you to pay property taxes and homeowners insurance into an escrow account. These "PITI" (Principal, Interest, Taxes, Insurance) costs can add several hundred dollars to your monthly total.
How Rates Affect Long-term Costs
Even a 1% difference in your interest rate can result in tens of thousands of dollars in savings over 30 years. Using the bankrate mortgage calculator allows you to see how improving your credit score—and thus qualifying for a lower rate—can drastically reduce the total interest you pay over the life of your mortgage.