Choosing a mortgage is one of the most significant financial decisions you'll make. A crucial factor influencing your monthly payments and the total cost of your loan is the interest rate. Even a small difference in interest rates can lead to substantial savings or added expenses over the life of a loan. This calculator helps you directly compare the monthly payments and potential savings between two different mortgage interest rates.
How the Calculator Works
The calculator uses the standard mortgage payment formula (also known as the annuity formula) to determine the estimated monthly principal and interest payment for each loan scenario.
The formula is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
M = Your total monthly mortgage payment (principal and interest)
P = The principal loan amount (the amount you borrow)
i = Your monthly interest rate. This is calculated by dividing your annual interest rate by 12 (e.g., 5% annual rate = 0.05 / 12 = 0.00416667 monthly rate).
n = The total number of payments over the loan's lifetime. This is calculated by multiplying the number of years in the loan term by 12 (e.g., a 30-year mortgage has 30 * 12 = 360 payments).
Key Factors to Consider When Comparing Rates:
Annual Percentage Rate (APR): Always look at the APR, not just the advertised interest rate. APR includes fees and other costs of the loan, giving a more accurate picture of the true cost.
Loan Term: Shorter terms typically have lower interest rates but higher monthly payments. Longer terms have lower monthly payments but you'll pay more interest over time.
Points and Fees: Some lenders charge "points" (prepaid interest) to lower the interest rate. Factor these costs into your comparison. Use this calculator to see if paying points is worthwhile based on the interest savings.
Loan Type: Fixed-rate mortgages offer stable payments, while adjustable-rate mortgages (ARMs) can start with lower rates that may increase over time.
Lender Reputation: Consider the lender's customer service, reliability, and any potential hidden fees.
How to Use This Calculator
Enter the total Loan Amount you intend to borrow.
Input the Loan Term in years (e.g., 15, 30).
Enter the first mortgage interest rate in the Mortgage Rate 1 field (e.g., 4.5).
Enter the second mortgage interest rate in the Mortgage Rate 2 field (e.g., 4.75).
Click the "Compare Rates" button.
The calculator will display the estimated monthly principal and interest payment for each rate and show the difference, highlighting potential savings. This tool is invaluable for quickly understanding the financial impact of even minor rate variations.
function calculateMonthlyPayment(principal, annualRate, years) {
var monthlyRate = annualRate / 100 / 12;
var numberOfPayments = years * 12;
if (monthlyRate <= 0) {
return principal / numberOfPayments; // Handle 0% interest case
}
var numerator = principal * monthlyRate * Math.pow(1 + monthlyRate, numberOfPayments);
var denominator = Math.pow(1 + monthlyRate, numberOfPayments) – 1;
return numerator / denominator;
}
function compareMortgageRates() {
var loanAmount = parseFloat(document.getElementById("loanAmount").value);
var loanTerm = parseInt(document.getElementById("loanTerm").value);
var rate1 = parseFloat(document.getElementById("rate1").value);
var rate2 = parseFloat(document.getElementById("rate2").value);
var resultMessageElement = document.getElementById("resultMessage");
var monthlyPayment1Element = document.getElementById("monthlyPayment1");
var monthlyPayment2Element = document.getElementById("monthlyPayment2");
var differenceElement = document.getElementById("difference");
// Clear previous results
resultMessageElement.innerText = "";
monthlyPayment1Element.innerText = "";
monthlyPayment2Element.innerText = "";
differenceElement.innerText = "";
if (isNaN(loanAmount) || loanAmount <= 0) {
resultMessageElement.innerText = "Please enter a valid loan amount.";
return;
}
if (isNaN(loanTerm) || loanTerm <= 0) {
resultMessageElement.innerText = "Please enter a valid loan term in years.";
return;
}
if (isNaN(rate1) || rate1 < 0) {
resultMessageElement.innerText = "Please enter a valid interest rate for Rate 1.";
return;
}
if (isNaN(rate2) || rate2 < 0) {
resultMessageElement.innerText = "Please enter a valid interest rate for Rate 2.";
return;
}
var payment1 = calculateMonthlyPayment(loanAmount, rate1, loanTerm);
var payment2 = calculateMonthlyPayment(loanAmount, rate2, loanTerm);
monthlyPayment1Element.innerText = "Monthly Payment (Rate 1): $" + payment1.toFixed(2);
monthlyPayment2Element.innerText = "Monthly Payment (Rate 2): $" + payment2.toFixed(2);
var difference = Math.abs(payment1 – payment2);
var betterRate = (payment1 < payment2) ? rate1 : rate2;
var worseRate = (payment1 < payment2) ? rate2 : rate1;
var savings = Math.abs(payment1 – payment2);
if (payment1 === payment2) {
differenceElement.innerText = "Both rates result in the same monthly payment.";
} else if (payment1 < payment2) {
differenceElement.innerText = "Rate 1 is lower by $" + savings.toFixed(2) + " per month.";
differenceElement.innerHTML += "Choosing Rate 1 (" + rate1 + "%) over Rate 2 (" + rate2 + "%) saves approximately $" + savings.toFixed(2) + " per month.";
} else {
differenceElement.innerText = "Rate 2 is lower by $" + savings.toFixed(2) + " per month.";
differenceElement.innerHTML += "Choosing Rate 2 (" + rate2 + "%) over Rate 1 (" + rate1 + "%) saves approximately $" + savings.toFixed(2) + " per month.";
}
}