Mortgage Calculator

Your mortgage payment consists of four parts that lenders call PITI: Principal, Interest, Taxes, and Insurance. The principal and interest portion follows a fixed amortization schedule where early payments are mostly interest. On a $300,000 loan at 7%, your first payment includes $260 toward principal and $1,750 toward interest — the balance gradually shifts over 30 years.

Property taxes and insurance are collected monthly by your lender and held in an escrow account, then paid annually on your behalf. This protects the lender's investment and spreads your tax burden across 12 months instead of one large bill. Most borrowers prefer this arrangement even though it increases monthly payments.

The 28% debt-to-income rule exists because housing costs above this threshold correlate with higher default rates. Lenders want evidence you can handle the payment during income disruption — car repairs, medical bills, or temporary unemployment. Your mortgage calculator shows the payment, but affordability depends on your complete financial picture including emergency savings and other debt obligations.

Use this calculator when you have a specific home price and want to determine monthly payments, or when you know your budget and need to work backward to affordable price ranges. It applies to fixed-rate mortgages where the payment remains constant for the entire term — the most common loan type for primary residences.

Do not use this for adjustable-rate mortgages (ARMs) where the interest rate changes after an initial period. ARM payments require a different calculation that accounts for rate adjustment caps and indexes. Similarly, interest-only loans or negative amortization products follow completely different payment structures that this calculator cannot model.

The calculator assumes you will hold the mortgage for the full term, but most homeowners refinance or move within 7-10 years. If you plan to relocate soon, focus on the monthly payment rather than total interest paid — you will never reach the later years where principal paydown accelerates significantly.

Buyers often focus only on principal and interest, ignoring taxes and insurance that can add $500-1,500 to monthly payments. Property taxes vary dramatically by location — Texas averages 2.3% annually while Hawaii averages 0.3%. Using the principal-and-interest number to determine affordability leads to payment shock when the first escrow statement arrives.

Down payment decisions frequently ignore PMI costs and opportunity cost. PMI adds 0.5-1.0% annually to the loan balance, so $300,000 borrowed costs an extra $1,500-3,000 yearly until you reach 20% equity. However, rushing to avoid PMI by draining savings eliminates your emergency fund — one of the strongest predictors of mortgage default.

Rate shopping mistakes cost thousands over the loan term. Borrowers often accept the first rate quoted or focus only on the interest rate while ignoring closing costs. A 6.75% loan with $2,000 in fees beats a 6.5% loan with $8,000 in fees if you plan to stay in the home less than 8 years. Always compare the annual percentage rate (APR) which includes both rate and fees.

The monthly payment formula is M = P[r(1+r)^n]/[(1+r)^n-1], where M is monthly payment, P is principal (loan amount), r is monthly interest rate (annual rate divided by 12), and n is number of payments (years × 12). For a $400,000 loan at 6.5% over 30 years: P = 400,000, r = 0.065/12 = 0.00542, n = 360 payments.

Substituting: M = 400,000[0.00542(1.00542)^360]/[(1.00542)^360-1] = 400,000[0.00542 × 6.84]/[5.84] = 400,000 × 0.00635 = $2,528. The total interest paid equals (monthly payment × number of payments) - loan amount = ($2,528 × 360) - $400,000 = $510,080.

Amortization means early payments are mostly interest while later payments are mostly principal. In year one, roughly $1,733 of each payment goes to interest and $795 to principal. By year 25, this flips to $400 interest and $2,128 principal. Zero interest loans simply divide the principal by number of payments: $400,000 ÷ 360 = $1,111 monthly.

The standard amortization formula assumes a fixed rate for the full term, but most homeowners refinance within 7 years. Mortgage professionals use break-even analysis rather than total interest to compare options — if refinancing costs $4,000 and saves $200 monthly, the break-even point is 20 months. Points and fees matter more than rate when you will not hold the loan long enough to recover upfront costs.