This calculator determines your mortgage payment and provides you with a mortgage payment schedule. The calculator also shows how much money and how many years you can save by making prepayments. See what your mortgage payments could be and discover ways you can save money.
Mortgages
A mortgage is a loan secured by property, typically real estate. Lenders define it as the money borrowed to pay for real estate. Essentially, the lender assists the buyer in paying the seller of a house, and the buyer agrees to repay the loan over a set period, usually 15 or 30 years in the U.S. Monthly payments are made from the buyer to the lender, consisting of two parts: the principal (the original loan amount) and the interest (the cost of borrowing the money). There may also be an escrow account to cover property taxes and insurance. The buyer doesn’t fully own the mortgaged property until the last payment is made. In the U.S., the most common mortgage is the conventional 30-year fixed-rate loan, which accounts for 70% to 90% of all mortgages. This system enables most people to own homes in the U.S.
Mortgage Calculator Components
A mortgage typically includes several key components, which are also the basic elements of a mortgage calculator:
- Loan amount: The amount borrowed from a lender or bank, which is the purchase price minus any down payment. The maximum loan amount usually correlates with household income or affordability. Use our House Affordability Calculator to estimate an affordable amount.
- Down payment: The upfront payment, usually a percentage of the total price. Typically, lenders require a 20% down payment, but some borrowers can put down as little as 3%. If the down payment is less than 20%, private mortgage insurance (PMI) is required until the loan’s remaining principal drops below 80% of the home’s original purchase price. Higher down payments generally lead to more favorable interest rates and increased likelihood of loan approval.
- Loan term: The period over which the loan must be repaid, typically 15, 20, or 30 years. Shorter terms, like 15 or 20 years, often have lower interest rates.
- Interest rate: The percentage of the loan charged as the cost of borrowing. Mortgages can have fixed or adjustable rates. Fixed-rate mortgages (FRM) have consistent rates throughout the loan term, while adjustable-rate mortgages (ARM) have rates that change periodically after an initial fixed period. ARMs usually start with lower rates than FRMs. Mortgage interest rates are usually expressed as an Annual Percentage Rate (APR), reflecting the interest rate and any additional costs over a year.
Costs Associated with Home Ownership and Mortgages
Monthly mortgage payments are the main financial cost of owning a house, but there are other substantial costs, divided into recurring and non-recurring categories. Recurring costs persist throughout and beyond the mortgage term and can increase due to inflation. In our calculator, these costs are under the “Include Options Below” checkbox, with optional inputs for annual percentage increases under “More Options.”
- Property taxes: Annual taxes paid to local authorities, typically around 1.1% of the property value in the U.S.
- Home insurance: Covers accidents and liabilities involving the property. Costs vary by location, property condition, and coverage amount.
- Private mortgage insurance (PMI): Required if the down payment is less than 20% of the property’s value, usually costing 0.3% to 1.9% of the loan amount annually.
- HOA fees: Fees paid to homeowner associations for maintaining and improving property and neighborhoods, usually less than 1% of the property value annually.
- Other costs: Includes utilities, maintenance, and general upkeep, often totaling 1% or more of the property’s value annually.
Non-Recurring Costs
These costs aren’t included in the calculator but are still important to consider.
- Closing costs: Fees paid at the closing of a real estate transaction, which can include attorney fees, title service costs, recording fees, and more. Typically, buyers pay about $10,000 in total closing costs on a $400,000 transaction.
- Initial renovations: Optional costs for updating the property before moving in, which can add up quickly but are not immediate necessities.
- Miscellaneous: Includes new furniture, appliances, and moving costs, as well as repair expenses.
Early Repayment Strategies
Mortgage borrowers may want to pay off their loans early for various reasons, such as saving on interest, selling their home, or refinancing. Our calculator can factor in monthly, annual, or one-time extra payments. However, borrowers should understand the advantages and disadvantages of early repayment. Borrowers can use these strategies individually or in combination to repay a mortgage loan earlier, saving on interest:
- Make extra payments: Additional payments reduce the loan balance, decreasing interest and allowing for earlier payoff. Some people make extra payments regularly, while others do so whenever possible.
- Biweekly payments: Paying half the monthly amount every two weeks results in 26 payments per year, equivalent to 13 months of mortgage repayments. This strategy suits those paid biweekly.
- Refinance to a shorter term: Taking out a new loan to pay off the old one with a shorter term can lower interest rates and expedite payoff, though it may require higher monthly payments and additional closing costs.
Reasons for Early Repayment
Early repayment offers several benefits:
- Lower interest costs: Savings on interest, often a significant expense.
- Shorter repayment period: Faster payoff means debt-free status sooner.
- Personal satisfaction: Emotional well-being and financial freedom from debt obligations.
Drawbacks of Early Repayment
However, there are also potential downsides:
- Possible prepayment penalties: Some mortgages include penalties for early repayment, typically decreasing over time.
- Opportunity costs: Paying off a mortgage with a low interest rate might not be ideal if higher returns could be earned by investing the money elsewhere.
- Capital locked up in the house: Funds used for early repayment can’t be spent elsewhere, potentially leading to additional loans for unexpected expenses.
- Loss of tax deduction: Lower interest payments result in smaller tax deductions for those who itemize deductions.
By understanding these components and strategies, borrowers can make informed decisions about managing their mortgage and overall financial health.
