Use this tool to estimate your potential monthly mortgage payment, see the total interest paid, or solve for the maximum loan amount you can afford. This calculator aligns with principles for debt-free living.
Mortgage Calculator (Dave Ramsey)
Calculated Result: $0.00
Detailed Calculation Steps
Calculation steps will appear here after clicking ‘Calculate’.
Mortgage Payment Formula
The standard fixed-rate mortgage payment formula (P&I only) is:
$$M = P \left[ \frac{i(1+i)^n}{(1+i)^n – 1} \right]$$
Where:
- $M$ = Monthly Payment
- $P$ = Principal Loan Amount
- $i$ = Monthly Interest Rate (Annual Rate / 1200)
- $n$ = Total number of payments (Term in Years $\times$ 12)
Formula Source: Investopedia – Mortgage, Bankrate Calculator
Variables Explained
- Loan Amount (P): The total principal borrowed after the down payment.
- Annual Interest Rate (I): The nominal yearly rate, expressed as a percentage.
- Loan Term (N): The length of the loan in years (e.g., 15 or 30). Shorter terms are generally preferred for maximum savings.
- Monthly Payment (M): The fixed amount paid each month to cover Principal and Interest (P&I).
What is the Mortgage Calculator Dave Ramsey Recommends?
Dave Ramsey advocates for a conservative approach to home buying, strongly recommending a 15-year fixed-rate mortgage over a 30-year term. The primary reason is the massive reduction in total interest paid, saving the borrower hundreds of thousands of dollars over the life of the loan. This calculator allows users to compare these terms easily.
Furthermore, his advice centers on ensuring the monthly payment (including Principal, Interest, Taxes, Insurance, and HOA dues) is no more than 25% of your take-home pay. This “25% Rule” acts as a critical guardrail against overextending financially, promoting financial peace and security.
How to Calculate the Monthly Payment (Example)
- Identify the Variables: Loan Amount (P) = $200,000, Annual Rate (I) = 6.00%, Term (N) = 15 years.
- Convert to Monthly Rate and Payments: Monthly Rate ($i$) = $6.00\% / 1200 = 0.005$. Total Payments ($n$) = $15 \times 12 = 180$.
- Calculate the Compounding Factor: $(1+i)^n = (1.005)^{180} \approx 2.45409$.
- Calculate the Payment Factor: Factor = $\frac{i(1+i)^n}{(1+i)^n – 1} = \frac{0.005 \times 2.45409}{2.45409 – 1} \approx 0.0084385$.
- Determine Monthly Payment (M): $M = P \times \text{Factor} = 200,000 \times 0.0084385 \approx \$1,687.70$.
Frequently Asked Questions (FAQ)
Is a 15-year mortgage always better than a 30-year one?
Financially, a 15-year term is almost always superior because it saves massive amounts in interest. However, it requires a higher monthly payment. You should only choose a 15-year term if the payment adheres to the 25% of take-home pay rule.
Does this calculator include property taxes and insurance?
No, this calculator determines the Principal and Interest (P&I) portion only. You must calculate estimated Taxes (T) and Insurance (I) separately and add them to the result to get the total PITI payment.
What is the maximum debt-to-income ratio (DTI) recommended?
Lenders may allow a DTI up to 43% or higher, but a conservative financial planner would recommend keeping your total monthly debt payments (including the new mortgage) below 35% of your gross income, or ideally, following the 25% of take-home pay rule.
Can I use this to find the total interest I will pay?
Yes. Once the monthly payment (M) is calculated, the Total Cost is $M \times n$. Subtracting the Loan Amount (P) from the Total Cost gives the Total Interest Paid.