A mortgage calculator can help you figure out the maximum monthly payments you can afford. Follow these steps for using our mortgage calculator:
- Enter a home price. Start by searching your housing market for homes that have the features you need – such as a three bedroom house with two bathrooms. This will help you get a better idea of the purchase price you’re aiming for. You can also get in touch with a local real estate agent to get a better idea of prices in your search area, as well as a mortgage lender to determine how much home you can afford.
- Enter your down payment amount. Your mortgage down payment is the amount of cash you’re putting toward the home purchase. The higher your down payment, the less you have to finance through a mortgage lender. A bigger down payment also reduces the lender’s risk, which can result in a lower interest rate. You can enter your down payment as a dollar figure or as a percentage of the home purchase price. If you make a down payment of less than 20%, you will typically have to pay for private mortgage insurance.
- Choose a loan term. A 30-year fixed-rate mortgage is a popular choice among homebuyers because it allows you to split a lower monthly payment over a longer period of time. A 15-year fixed-rate mortgage may be a good option if you can afford a higher monthly payment, since a shorter repayment term will cost you less in interest charges over the life of the home loan. You might also consider an adjustable-rate mortgage, or ARM, which gives you a fixed interest rate for a set period of time – typically five or 10 years. But after that initial period, your rate (and monthly payment) will change every year or six months.
- Estimate your interest rate. Do some research on mortgage rates today to get a better idea of the current rate environment. Your interest rate will depend on the type of loan you have, such as FHA or conventional, as well as the repayment length, the loan amount, the loan-to-value ratio and your creditworthiness.
- Account for miscellaneous expenses. By clicking “Show more options,” you can enter the property taxes based on home price and the current tax rate where the home is located. You can also input your estimated homeowners insurance premium paid per month, as well as homeowners association fees, which you can find on a home’s listing or your purchase agreement.
- See your estimated payments. This calculator shows your monthly principal and interest paid to the lender. It also lets you see expenses that may be held in an escrow account, like property taxes and homeowners insurance, as well as HOA fees that aren’t typically rolled into escrow.
- Play around with the figures. If you’re looking to keep your mortgage payment below a certain dollar amount, you can change the loan terms. For example, finding a home at a lower purchase price or coming prepared with a larger down payment can help you lower your monthly payment. Alternatively, choosing a shorter or longer loan length will also impact your monthly mortgage payment.
Your monthly mortgage payment includes financing costs through the lender, as well as other monthly expenses like property taxes and home insurance. Most lenders will require you to roll these secondary costs into your monthly payment, although you may be able to bypass this stipulation if you have a larger down payment.
Here’s how it works: You make the entire payment to your mortgage lender, which deposits the additional funds (minus principal and interest) back into an escrow account that’s managed by the lender or a third-party title company. The escrow account is then used to pay your taxes and insurance.
Depending on your situation, your monthly mortgage payment may include the following:
Principal. A portion of your monthly payment goes toward repaying the principal balance of your loan, which essentially lowers your debt amount. The amount of the payment that goes toward the principal typically starts out lower at the beginning of your mortgage, increasing over time. Take a look at your mortgage amortization schedule to see how your principal balance decreases over the life of the home loan.
Interest. The interest payments are paid directly to the lender, and they won’t lower your principal amount. Your mortgage rate determines how much money you’re paying the lender to finance your loan. Mortgage interest rates depend on the current rate environment as well as the type of mortgage you borrow and your creditworthiness, including credit score and debt-to-income ratio.
Taxes. Property taxes are paid to your local government agency (such as city or county), which uses the money to fund public services like education, public safety and transportation. Property taxes are typically paid annually or biannually, but they can be rolled into your monthly payments through an escrow account. The amount you pay in property taxes may increase over time if your local tax rate increases or your assessed property value rises. You can estimate your monthly real estate taxes by searching for the tax rate in your area and calculating them as a percentage of your property’s value.
Insurance. Mortgage borrowers must carry a homeowners insurance policy on the property that’s being financed. The type of insurance coverage you’re required to carry will depend on the lender and the type of loan you have, such as government-backed or conventional. Home insurance rates vary based on the condition and value of the property, the depth of coverage and where you’re located, as well as your credit score. You should also account for private mortgage insurance if your loan-to-value ratio is less than 80%.
Looking at homes without a clear sense of what you can afford makes little sense. Start your research with a mortgage calculator, and then sit down with a mortgage professional who can provide a more detailed analysis.
You’ll need to know what a comfortable monthly payment is before you set your heart on a certain price range of homes, says Josh Lyon, vice president and mortgage loan officer at Colorado’s Motto Mortgage Innovations.
“The last thing any future homebuyer wants to do is get into a home they cannot afford,” Lyon says. “There is a difference between what you qualify for and what you can afford.”
A mortgage calculator can give you an idea of how much house you can buy. Maybe you’ve begun to browse homes priced between $350,000 and $500,000 and are wondering whether you can afford the top of that price range.
Principal and interest alone for a $350,000 30-year conventional mortgage at a fixed rate of 5% is estimated at about $1,879 monthly. The same type of loan bumped up to $500,000 results in principal and interest payments of about $2,684.
Your down payment can lower monthly principal and interest payments, but you’ll also need to budget for property taxes and homeowners insurance premiums, which you might pay with your mortgage.
Unfortunately, a mortgage calculator can’t answer questions about how much house you can get for precise dollar amounts. You won’t know what to buy for a $1,000 mortgage payment.
“There are a lot more factors that go into qualifying for a mortgage loan than just loan amount, including the interest rate, taxes, homeowners insurance and potential mortgage insurance,” Lyon says. “A payment of $1,000 per month can truly vary from client scenario to client scenario.”
In fact, just the interest rate alone will depend on a number of criteria including but not limited to credit score, loan program, down payment amount and debt-to-income ratio. Of course, you can use a mortgage calculator to plug in higher or lower rates, or to adjust your down payment, to see how your payment changes.
“It is important to note that this amount is an estimate and contingent on numerous individual factors, including APR,” Lyon says. “Every person’s scenario is different.”
Take a good, hard look at your budget. Make sure that you’ve accounted for all of your monthly expenses, with room to spare.
You’ll need to consider different loan program criteria, such as down payments, savings and credit requirements. Don’t forget closing costs, which are typically 2% to 5% of the home purchase price. You’ll also want to leave yourself a savings cushion for home maintenance as well as repairs.
A mortgage calculator can help you set a budget before you begin to look at – and fall in love with – homes you can’t afford. You can start on your own with a calculator and then speak to a mortgage professional for further guidance.
Whatever you do, don’t go it alone. “One of the worst parts of my job is breaking the news that a potential homebuyer may need to alter their homebuying expectations,” Lyon says.
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