How the Mortgage Calculator Works
A mortgage is a loan you use to buy a home. You repay it in equal monthly payments over many years, usually 15 or 30. But the bill you get each month is often bigger than the loan payment itself, because it also includes property tax, insurance and sometimes other charges. The Mortgage Calculator adds them all up, so you can see the real monthly cost.
What you enter
- Home price and down payment: the price of the home, and the cash you pay up front. The rest is the loan.
- Interest rate and term: the yearly rate, and the number of years to repay.
- Property tax: a yearly percentage of the home's price, paid to your local government. It is usually collected monthly with your payment.
- Home insurance: the yearly cost, also collected monthly.
- HOA fee: a monthly fee, if the home is part of a homeowners' association.
- Mortgage insurance: a charge added when your down payment is less than 20% of the price.
- Extra payment (optional): money you add each month to pay the loan off sooner.
Principal and interest
The main part of the payment covers the loan itself. The calculator subtracts your down payment from the price to get the loan amount. The yearly rate is divided by 12 to get the monthly rate. Then the standard formula gives the payment, where P is the loan, r is the monthly rate and n is the number of months:
payment = P x r x (1 + r)^n / ((1 + r)^n - 1)
If the rate is 0%, the payment is just the loan divided by the number of months. This payment stays the same for the whole loan, with a fixed rate.
The other parts of the payment
property tax per month = home price x tax rate / 12 insurance per month = yearly insurance / 12 mortgage insurance per month = loan x insurance rate / 12 (only if the down payment is under 20%)
Mortgage insurance protects the lender if you put down less than 20%. The calculator adds it while you owe more than 80% of the home's price, and it stops once you have paid down the loan to that point. Paying extra makes it stop sooner.
A worked example
You buy a $350,000 home with $70,000 down (20%). The loan is $280,000 at 6.5% for 30 years. Property tax is 1.1% a year and insurance is $1,500 a year.
| Part of the payment | Per month |
|---|---|
| Principal and interest | $1,769.79 |
| Property tax | $320.83 |
| Home insurance | $125.00 |
| Total | $2,215.62 |
Over 30 years you pay $357,125 in interest, which is more than the $280,000 you borrowed.
Chart: where each year's payments go
The same loan. Each row is one year of principal and interest payments. The dark blocks are interest, and the light blocks are the part that reduces the loan:
Year 5 ████████████████████████████████░░░░░░░░ $17,181 interest / $4,056 loan Year 10 █████████████████████████████░░░░░░░░░░░ $15,629 interest / $5,609 loan Year 15 █████████████████████████░░░░░░░░░░░░░░░ $13,482 interest / $7,756 loan Year 20 ████████████████████░░░░░░░░░░░░░░░░░░░░ $10,512 interest / $10,725 loan Year 25 ████████████░░░░░░░░░░░░░░░░░░░░░░░░░░░░ $6,407 interest / $14,831 loan Year 30 █░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░ $729 interest / $20,508 loan
In the early years, most of your payment is interest. Later, most of it pays off the loan. That is why extra payments early on are so powerful.
What a smaller down payment does
With only $17,500 down (5%), the loan is $332,500. The payment for principal and interest rises to $2,101.63, and mortgage insurance adds $193.96 a month for about 10 years and 4 months. The total becomes $2,741.42 a month, and you pay $424,085 in interest.
What extra payments do
Any extra money goes straight to the loan, so less interest is charged next month. Adding $300 a month to the first example pays off the loan in 20 years and 5 months instead of 30. That is 115 months sooner, and it saves $131,512 in interest.
Good to know
- Property tax and insurance change over time, so your real payment may go up or down even with a fixed-rate loan.
- A higher credit score and a bigger down payment can get you a lower rate. Even 0.5% less saves a lot over 30 years.
- A 15-year loan has a higher payment, but a lower rate and far less interest.
- Your lender may hold your tax and insurance money in an escrow account and pay the bills for you.
What this calculator does not include
- Closing costs, points and moving expenses.
- Loans with an adjustable rate, where the payment can change.
- Special mortgage insurance rules, such as FHA loans, which have their own premiums.
- Maintenance and repairs. A common rule is to budget about 1% of the home's value each year.
This tool gives an estimate for general information only. It is not financial advice. Your lender can give you an exact quote.