Mortgage Payment Calculator
Understanding Your Mortgage Payment
Using a mortgage calculator is an essential step in the home buying process. It helps you estimate your monthly housing costs, ensuring you shop for homes that fit your budget. This calculator breaks down the four main components of a monthly mortgage payment: Principal, Interest, Taxes, and Insurance (often referred to as PITI).
1. Principal & Interest (P&I)
The principal is the money you borrowed to buy the home, while interest is the cost of borrowing that money. In the early years of a standard fixed-rate mortgage, a larger portion of your payment goes toward interest. As time passes, more of your payment goes toward reducing the principal balance.
2. Property Taxes
Local governments assess property taxes to fund public services like schools, police, and road maintenance. This calculator estimates the monthly tax burden by dividing your annual property tax input by 12. Lenders often collect this portion monthly and hold it in an escrow account to pay the tax bill on your behalf.
3. Homeowners Insurance
Lenders require homeowners insurance to protect the property against damages like fire or storms. Similar to property taxes, the annual premium is usually divided into monthly installments and paid via an escrow account.
4. HOA Fees
If you are buying a condo or a home in a planned community, you may have to pay Homeowners Association (HOA) fees. These cover common area maintenance and amenities. While usually paid directly to the HOA, they are included in this calculator to give you a complete picture of your monthly housing expenses.
How Interest Rates Affect Your Buying Power
Even a small difference in interest rates can significantly impact your monthly payment and the total interest paid over the life of the loan. For example, on a $400,000 loan, a 1% increase in interest rate can increase your monthly payment by hundreds of dollars. Use this tool to experiment with different rates and see how they affect your bottom line.