Mortgage Payment Calculator
Estimated Monthly Payment
Understanding Your Mortgage Calculation
Purchasing a home is likely the largest financial commitment you will make in your lifetime. Understanding how your mortgage payments are calculated is crucial for maintaining financial health. This calculator uses the standard amortization formula to determine your monthly obligations based on the principal loan amount, interest rate, and loan term.
How is the Monthly Payment Calculated?
Your estimated monthly payment is composed of several factors. The core components are Principal and Interest (often abbreviated as P&I). The formula used by lenders is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1 ]
- P (Principal): The total amount of money borrowed (Home Price minus Down Payment).
- i (Interest Rate): The monthly interest rate (Annual Rate divided by 12 months).
- n (Number of Payments): The total number of months in the loan term (Years multiplied by 12).
The Impact of Down Payments
The size of your down payment significantly affects your long-term costs. A larger down payment reduces the principal amount (P), which lowers both your monthly payment and the total interest paid over the life of the loan. Typically, a down payment of 20% is recommended to avoid Private Mortgage Insurance (PMI), though many lenders accept significantly less.
Interest Rates and Loan Terms
Even a small difference in interest rates can equate to tens of thousands of dollars over a 30-year period. While a 15-year term usually comes with a lower interest rate and significantly lower total interest costs, the monthly payments are higher compared to a 30-year term. Use the calculator above to compare how different rates and terms impact your monthly budget.
Additional Costs: Taxes and Insurance
Remember that your "sticker price" mortgage payment often doesn't include property taxes or homeowners insurance, which are frequently bundled into an escrow account. This calculator includes fields for these optional values to give you a more realistic view of your total monthly housing expense (PITI – Principal, Interest, Taxes, and Insurance).