Mortgage Calculator
= $60,000
Quick Tips
- ✓20% down payment avoids PMI (Private Mortgage Insurance)
- ✓15-year loans have higher payments but save significantly on interest
- ✓Keep total housing costs under 28% of gross income
- ✓Don't forget property taxes, insurance, and maintenance costs
Understanding Your Mortgage
The Mortgage Payment Formula
Your monthly mortgage payment is calculated using this formula:
Where:
- M = Monthly payment
- P = Principal (loan amount)
- r = Monthly interest rate (annual rate ÷ 12)
- n = Total number of payments (years × 12)
Components of a Mortgage Payment
Your actual monthly housing payment typically includes more than just principal and interest:
Principal
The portion that reduces your loan balance. Early in the loan, this is a small percentage of your payment.
Interest
The cost of borrowing money. Most of your early payments go toward interest.
Property Taxes
Usually 1-2% of home value annually, often held in escrow and paid by your lender.
Insurance
Homeowners insurance protects your property; PMI is required if down payment is less than 20%.
15-Year vs 30-Year Mortgage
| Factor | 15-Year | 30-Year |
|---|---|---|
| Monthly Payment | Higher | Lower |
| Interest Rate | Usually lower | Usually higher |
| Total Interest Paid | Much less | Much more |
| Equity Building | Faster | Slower |
Example Comparison: $300,000 Loan at 6.5%
30-Year:
Monthly: $1,896
Total Interest: $382,633
15-Year:
Monthly: $2,613
Total Interest: $170,402
The 15-year option saves over $212,000 in interest!
How Amortization Works
Amortization is the process of spreading your loan payments over time. In a standard mortgage:
- Early payments are mostly interest, with little going to principal
- As the balance decreases, more of each payment goes to principal
- By the end, payments are mostly principal
- Extra payments directly reduce principal and can significantly shorten your loan
Frequently Asked Questions
How much house can I afford?
A common guideline is that your monthly housing costs (including mortgage, taxes, and insurance) should not exceed 28% of your gross monthly income. For a more accurate estimate, use our House Affordability Calculator which considers your income, debts, down payment, and current interest rates.
What is PMI and when is it required?
Private Mortgage Insurance (PMI) is required when your down payment is less than 20% of the home's purchase price. PMI typically costs 0.5% to 1% of the loan amount annually. Once you reach 20% equity in your home, you can request to have PMI removed.
Should I choose a 15-year or 30-year mortgage?
A 15-year mortgage has higher monthly payments but significantly lower total interest costs and usually offers a lower interest rate. A 30-year mortgage has lower monthly payments, providing more financial flexibility, but you'll pay much more in interest over the life of the loan. Choose based on your budget and financial goals.
How does making extra payments affect my mortgage?
Making extra payments directly reduces your principal balance, which decreases the total interest you'll pay and shortens your loan term. Even small additional payments can save thousands of dollars over the life of the loan. Be sure to check if your mortgage has any prepayment penalties.