Mortgage Analyzer

Most buyers focus on the purchase price, but it is the monthly payment that determines whether a home is actually affordable month to month. Two homes priced identically can produce very different payments depending on the interest rate and term chosen — and two buyers with the same monthly payment can end up paying dramatically different totals depending on how long they take to repay.

The monthly payment covers two distinct flows: principal repayment (reducing the balance you owe) and interest (the lender's fee for providing the loan). In the early months of a standard amortizing mortgage, nearly all of your payment is interest. Over time, as the balance shrinks, more of each payment flips to principal. This is why making one extra principal payment early in the loan has an outsized effect — it removes a large chunk of interest from all future periods.

The loan term is the multiplier that transforms a monthly payment into a total cost. A 30-year term keeps the monthly payment low but means you make 360 payments, each of which carries an interest component. A 15-year term roughly doubles the pace of repayment and cuts the total interest significantly, even though the rate itself is often a bit lower on the shorter term. Most buyers underestimate how much the term choice matters relative to the purchase price negotiation.

Use this tool when you are comparing loan offers, stress-testing how much home you can afford at different price points, or evaluating the trade-off between a 15-year and 30-year term before talking to a lender. It is also useful when refinancing — enter the remaining balance and new rate to see whether the monthly savings justify closing costs.

This tool is appropriate for fixed-rate conventional mortgages, FHA loans, VA loans, and jumbo loans — any product where the rate does not change after origination. It is not appropriate for adjustable-rate mortgages (ARMs), where the rate resets at defined intervals. An ARM payment can only be calculated exactly for the initial fixed period; projecting it beyond that requires rate assumptions this tool does not model.

Do not use this result as a standalone affordability decision. A payment that fits your current income may become unmanageable if income drops or if unmodeled costs (repairs, HOA fees, rising taxes) grow. The result here is mathematically exact for the inputs given — it does not account for financial stress scenarios. Use it as a starting point for a conversation with a lender, not as the final word on what you can sustain.

Mistake 1: Comparing monthly payments without comparing terms. A seller or lender may quote a low monthly payment on a 30-year loan next to a higher payment on a 15-year loan and present the lower payment as the better deal. The lower payment is real, but it conceals a far higher total interest cost. Always compare the total interest paid — $462,037.28 in the example — not just the monthly figure.

Mistake 2: Forgetting that the quoted rate is not the full cost. The APR includes lender fees rolled into the effective rate, while the interest rate shown on a loan estimate is the base rate used to compute your payment. This calculator uses the note rate to compute the payment exactly as your lender will. If you use the APR instead, your calculated payment will be slightly higher than what your lender bills you each month.

Mistake 3: Treating the payment as a fixed budget line forever. A fixed-rate mortgage has a constant principal-and-interest payment, but property taxes and insurance premiums rise over time. Buyers who budget precisely to the payment shown here sometimes find themselves short a few years in when their escrow account increases. Build buffer into your housing budget beyond the $2,227.88 this tool shows.

The standard amortization formula calculates a fixed monthly payment that, when made every period for the full term, reduces the loan balance to exactly zero. The formula is: monthly payment equals the loan amount multiplied by the monthly rate, times (1 plus the monthly rate) raised to the power of the number of periods, divided by ((1 plus the monthly rate) raised to the power of the number of periods, minus 1).

For the example inputs — a $340,000 loan at 6.85% annual rate over 30 years — the monthly rate is the annual rate divided by 100 divided by 12, giving a small decimal. The number of periods is 360. Plugging into the formula gives the monthly payment of $2,227.88. Multiply that by 360 to get the total amount paid of $802,037.28. Subtract the original $340,000 to isolate the total interest of $462,037.28.

When the interest rate is zero, the formula collapses to simple division: the loan amount divided by the number of periods. The calculator handles this edge case separately. All other rates use the full amortization formula, which is mathematically exact given the fixed-rate assumption — there is no estimation involved once the inputs are set.

The amortization formula assumes payments are made at the end of each period and that the stated annual rate compounds monthly. This is the US mortgage market standard, but it means the effective annual rate (EAR) is slightly higher than the nominal rate — the formula applies the periodic rate each month rather than dividing the annual interest charge equally. Buyers comparing US mortgages to Canadian mortgages (which compound semi-annually) need to adjust for this difference before making direct rate comparisons. The formula also assumes no prepayment, no payment holiday, and no rate change — conditions that hold for conventional fixed-rate products but break immediately under any loan modification or forbearance agreement.