Calculator Use
The nerdwallet mortgage calculator is an essential tool for prospective homebuyers and current homeowners looking to refinance. By inputting key financial details, you can estimate your total monthly housing cost beyond just the loan payment. This allows for more accurate budgeting and helps you understand how much home you can truly afford.
To use this calculator, simply enter your home purchase price, the amount you plan to pay upfront as a down payment, the loan duration, and the current market interest rate. You can also include secondary costs like property taxes and insurance to see a comprehensive PITI (Principal, Interest, Taxes, and Insurance) estimate.
- Home Price
- The total purchase price of the property you intend to buy.
- Down Payment
- The initial cash payment made upfront. Typically, 20% is recommended to avoid PMI, but many buyers pay less.
- Loan Term
- The number of years you have to repay the loan. 30-year and 15-year terms are the most common.
- Interest Rate
- The annual percentage rate (APR) charged by the lender for borrowing the funds.
How It Works
When you use the nerdwallet mortgage calculator, it employs the standard amortization formula to determine your Principal and Interest (P&I). The formula used is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1 ]
- M: Total monthly principal and interest payment
- P: The principal loan amount (Home Price minus Down Payment)
- i: Monthly interest rate (Annual Rate divided by 12)
- n: Number of months in the loan term (Years multiplied by 12)
Calculation Example
Example: Imagine you are buying a house for $400,000 with a $80,000 down payment (20%) on a 30-year fixed-rate mortgage at 6.5% interest. You also estimate $4,800 in annual property taxes and $1,200 in insurance.
Step-by-step solution:
- Principal (P) = $400,000 – $80,000 = $320,000
- Monthly Interest (i) = 6.5% / 100 / 12 = 0.0054167
- Number of Months (n) = 30 * 12 = 360
- Calculate P&I: $320,000 * [0.0054167(1.0054167)^360] / [(1.0054167)^360 – 1] = $2,022.62
- Monthly Tax = $4,800 / 12 = $400.00
- Monthly Insurance = $1,200 / 12 = $100.00
- Total Monthly Payment = $2,022.62 + $400 + $100 = $2,522.62
Common Questions
Does this calculator include PMI?
This version allows you to see the breakdown of primary costs. Private Mortgage Insurance (PMI) is usually required if your down payment is less than 20%. You can add estimated PMI costs into the "HOA" or insurance fields for a rough estimate if your down payment is low.
Why is the interest rate so important?
Even a 1% difference in interest rates can cost or save you tens of thousands of dollars over the life of a 30-year loan. Using the nerdwallet mortgage calculator helps you see exactly how much extra you pay for every percentage point increase.
Should I choose a 15-year or 30-year term?
A 15-year mortgage usually has a lower interest rate but much higher monthly payments. A 30-year mortgage offers lower monthly payments but results in significantly more interest paid over the long term. Use the calculator to compare both options side-by-side.