Calculating Your Mortage
How our mortgage calculator works
To use our mortgage calculator with amortization, you’ll need to provide some preliminary details about the home you want to purchase and your loan program. You can choose from our simple calculator, or the advanced version. The difference is that the advanced mortgage calculator includes property taxes, homeowners insurance, and homeowners association (HOA) dues.
It’s OK to use educated guesses when inputting your information into the calculator; you can adjust the numbers as you go.
Here’s a breakdown of each mortgage calculator component:
- Home price: Enter the purchase price, or sales price, of the home you’re buying. You may also enter the maximum amount you plan to offer on a home. This number will ultimately affect what your monthly payments will be.
- Down payment amount: Input the amount of money you plan to put down for the home upfront. While some types of loans require zero down, others require 3% or more, depending on the loan program. A higher down payment may help lower your monthly payment and potentially qualify for a lower interest rate.
- Loan program: The type of home loan you get may affect your interest rate and monthly payments. Choose from a 30-year fixed, 15-year fixed, or 5/1 adjustable-rate mortgage to calculate your estimated payments for the entire loan term.
- Interest rate: This will already be filled out with the latest average mortgage interest rate. Your actual interest rate will depend on your credit score, down payment amount, debt-to-income (DTI) ratio, and other factors lenders use to determine your ability to repay a home loan.
Advanced mortgage calculator components include:
- Property taxes: This amount is based on the value of the home and is usually set by a county’s property assessor.
- Homeowners insurance: Lenders typically require homebuyers to purchase this protection in case of damage or loss due to a natural disaster, fire, or other unexpected event.
- Homeowners association (HOA) dues: An HOA is an organization within a planned community development or subdivision that sets property rules for its members. Many HOAs require members to pay HOA fees for the upkeep and maintenance of common areas that all residents share. Enter this figure if you know it.
How to calculate a mortgage payment
When figuring out how much house you can afford, you must first understand the different costs that go into a mortgage payment. These include:
- Principal and interest (P&I): The principal is the total amount you will borrow, whereas interest is an additional fee you pay to borrow the money.
- Property taxes: Homeowners need to pay an annual tax that’s determined by a government entity. The amount you’ll pay is based on factors like the current fair market value of your home. Your lender will hold this amount in an escrow amount and pays them when taxes are due.
- Mortgage insurance: In many cases, borrowers will need to pay private mortgage insurance (PMI) if their down payment is less than 20% for a conventional loan. PMI protects the lender if the loan isn’t repaid.
- Homeowners insurance: Your lender may also collect this amount monthly and pay the entire bill when it’s due. In some instances, you may be able to pay this bill directly to your insurance provider. Most lenders require some form of policy that will cover damage and losses from perils such as fire, natural disasters, vandalism, and theft.
Our calculator uses the following formula to calculate a mortgage payment:
M = P [ i÷12(1 + i÷12)^n ] / [ (1 + i÷12)^n – 1]
- M = monthly mortgage payment
- P = the principal amount
- i = interest rate = number of monthly interest payments over the loan’s lifetime.
Calculating your monthly mortgage payment can help you determine how much house you can afford. Once you see your estimated monthly payment, you can decide whether you need a bigger down payment or a longer loan term, or consider a different home type that’s more affordable.
How to lower your mortgage payments
Once you’ve calculated your potential monthly payment and find that you can’t afford the mortgage, you have a few options aside from purchasing a less expensive home.
Extending your loan term will reduce the amount you pay each month. For instance, you’ll make smaller payments with a 30-year fixed mortgage compared to a 15-year loan. You can crunch numbers using our calculator above to see the impact of a 30-year versus 15-year loan on your monthly mortgage payments.
Another option is to make a larger down payment. If you put at least 20% down, you won’t have to pay PMI, which lowers your monthly borrowing costs. Plus, borrowers who have higher credit scores and lower debt-to-income (DTI) ratios (the percentage of your gross income that goes toward paying your monthly debt payments) tend to qualify for lower interest rates, saving them money on mortgage payments.
Before applying for a loan, check your credit scores and take proactive steps to boost them. You can lower your DTI ratio by paying down existing debt or increasing your income.
Don’t forget to shop around with multiple lenders to compare rates and loan terms. Lenders can also help you explore different home loan programs to ensure you’re choosing the best loan option for your specific situation.
Comparing home loans when shopping for a mortgage
Taking out a 30-year fixed mortgage means you’ll have a lower monthly payment compared to a 15-year loan, because you’re taking longer to pay down the loan. However, taking out a 30-year mortgage may result in you paying more interest overall throughout the lifetime of your loan.
Choosing between a fixed- or adjustable-rate mortgage may affect your monthly payment. With fixed rates, your principal and interest payments remain the same throughout your loan term. Adjustable-rate mortgages (ARMs), on the other hand, tend to have lower interest rates in the initial fixed-rate period. However, once that period ends, the loan resets to a variable rate that can go up or down, depending on market conditions.
Choosing the right mortgage type will depend on how long you intend to live in your home. For example, homeowners who plan on moving in a few years may find an ARM more appealing for the lower initial rate.
A FAM Loan Advisor can help you compare home loans to find the option that best meets your needs.
Mortgage calculator FAQs
How much house can I afford based on my salary?
Many lenders suggest that you don’t spend more than 28% of your gross (or pre-tax) monthly income on a monthly mortgage payment, including property taxes and homeowners insurance. For instance, if you make $5,000 each month, you should be able to comfortably afford up to $1,400 each month.
What could cause my monthly mortgage payments to go up?
Your monthly mortgage payments can go up if your homeowners insurance premiums or property taxes increase over time. Another reason for a bump in your mortgage payment on an adjustable-rate mortgage (ARM) is when the ARM resets following the end of the initial fixed-rate period. If the reset happens and interest rates are higher, your monthly payments may go up.
How much faster can I pay off my mortgage with extra payments?
You may be able to shave off a few years from your loan term by making extra mortgage payments. When you make an extra payment, indicate that those funds should be applied directly to the principal amount. Doing so will also reduce the interest you pay since it’s based on the principal amount. Even small, incremental principal payments can make a big difference over time.
What is private mortgage insurance?
Private mortgage insurance (PMI) protects the lender in case you default on your loan. PMI payments may be required when you make less than a 20% down payment and can help you qualify for a mortgage by lowering the lender’s risk.
What do HOA fees include?
Homeowners association (HOA) fees tend to cover shared community amenities, such as landscaping and grounds maintenance, trash pickup, or access to a pool or fitness center. HOA fees will vary depending on the property type and location, so do your research.