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This mortgage payment calculator will help you determine the cost of homeownership at today's mortgage rates, accounting for principal, interest, taxes, homeowners insurance, and, where applicable, condominium association fees. The default values of the mortgage calculator, including mortgage rate and length of loan, can be easily adjusted to reflect your current situation.
You can use the mortgage payment calculator in three ways. (1) You can use it to find the monthly mortgage payment of a home, given current mortgage rates and a specific home purchase price; (2) You can use it to find your maximum home purchase price given your annual household income; and (3) You can use it to determine your maximum home purchase price given a specific monthly budget for housing.
Home price is the dollar amount for which the home can be purchased. This is not the same as “listing price”, which is the amount for which the home is listed for sale. Home price does not include closing costs and loan fees. It’s the contractually-agreed upon price for a home.
Your interest rate is the rate at which you will repay the bank for your mortgage. Interest rates are expressed in annual terms. With fixed-rate mortgages, your mortgage interest rate will remain unchanged for the life of the loan. With adjustable-rate mortgage, your interest rate may change after a fixed number of years. When using this home mortgage calculator, use today’s mortgage rate for “interest rate”.
Sometimes known as “loan term”, the length of the loan is the number of years until the loan is paid in-full. Most mortgages have a loan term of 30 years. Since 2010, the 20-year and 15-year fixed rate mortgage have been increasingly common. The monthly cost of a mortgage is higher with a shorter-term loan, but less mortgage interest is paid over time. Homeowners with a 15-year mortgage will pay approximately 65% less mortgage interest as compared to a homeowner with a 30-year loan.
A down payment is the amount of equity that you put into the house at the time of purchase. For example, if you are buying a home for $100,000 and you make a $5,000 downpayment, you will have $5,000 equity (5%) in your new home. Some mortgage programs, such as the FHA loan, require a 3.5% downpayment; while others, including the VA loan and USDA loan, require no downpayment whatsoever. Your downpayment may not be the only cash required at closing so be sure to budget for closing costs and other items.
Homeowners insurance is an insurance policy against your home which protects against minor, major, and catastrophic loss. Sometimes called “hazard insurance”, all homeowners are required to carry such protection. Laws vary by state but, as a general rule, your homeowners insurance policy must be in an amount which covers the cost to rebuild your home as-is. Homeowners insurance costs vary by zip code and insurer. Homeowners insurance should not be confused with private mortgage insurance, which is something else entirely. Along with property taxes, homeowners insurance can be paid in equal installments along with your monthly mortgage payment. This arrangement is known as “escrowing” your taxes and insurance.
Property taxes are taxes assessed on a home, and paid to your state, city, and/or local government(s). Property taxes can range in cost from one-half percent of your home’s value, to two percent of its value or more on an annual basis. Sometimes called “real estate taxes”, property taxes are typically billed twice annually. Along with homeowners insurance, property taxes can be paid in equal installments along with your monthly mortgage payment. This arrangement is known as “escrowing” your taxes and insurance.
Homeowners Association dues are typically paid by condominium owners and homeowners in a planned urban development (PUD) or town home. HOA dues are paid monthly, semi-annually, or annually; and, are paid separately to a management company or governing body for the association. HOA dues cover common services for tenants and residents. These services may include landscaping, elevator maintenance, maintenance and upkeep, and legal costs. Homeowners association dues vary by building and neighborhood.
Mortgage insurance is a monthly payment which is paid by the homeowner for the benefit of the lender. Mortgage insurance “pays out” when a loan goes into default. Payments are made to the lender. Mortgage insurance is required for conventional loans via Fannie Mae and Freddie Mac for which the downpayment is twenty percent or less. This type of mortgage insurance is known as Private Mortgage Insurance (PMI). Other loan types require mortgage insurance, too, including USDA loans and FHA loans. With FHA loans and USDA loans, mortgage insurance is called Mortgage Insurance Premiums (MIP). Mortgage insurance is sometimes paid upfront (UFMIP) or as a single-premium; and is sometimes lender-paid (LPMI).
Annual income is the amount of documented income you earn each year. Income can be earned in many forms including W-2 income, 1099 income, K-1 distributions, social security income, pension income, and child support and alimony. Non-reported income cannot be used for qualifying purposes on a mortgage. When using the mortgage calculator, use pre-tax income.
Monthly debts are recurring payments, due monthly. Monthly debts may include auto leases, auto loans, student loans, child support and alimony payments, installment loans, and credit card payments. Note, though, that your monthly obligation on a credit card is its minimum payment due and not your total balance owed. For credit cards with no minimum payment due, use five percent (5%) of your balance owed as your minimum payment due.
Debt-to-Income Ratio (DTI) is a lender term used to determine home affordability. The ratio is determined by dividing the sum of your monthly debts into your verifiable monthly income. In general, mortgage approvals require a debt-to-income of 45% or less, although lenders will sometimes allow for an exception. Note that carrying a DTI of 45% may not be advisable. A high DTI commits much of your household income to housing payments.
Your monthly payment is your monthly obligation on your home. This includes your mortgage payment, plus homeowners association dues (HOA), where applicable. Your monthly payment will change over time because its components will change over time. Your real estate tax bill will change annually, as will the premium on your homeowners insurance policy. Homeowners with a adjustable-rate mortgage can expect for their mortgage payment to change, too, after the loan’s initial fixed period ends.
Amortization (pronounced ah-more-tih-ZAY-shun) is the schedule by which a mortgage loan is repaid to a bank. Amortization schedules vary by loan term, such that a 30-year mortgage will repay at a different pace than a 15-year mortgage or a 20-year one. In the early years of a loan, traditional mortgage amortization schedules are comprised of a high percentage of mortgage interest and a low percentage of principal repayment. In the later years of a loan, the percentage of mortgage interest drops and the percentage of principal repayment increases. As an example, at today’s mortgage rates, in the first year of a loan, a 15-year mortgage payment is comprised of 38% interest and 62% principal. A 30-year mortgage is 72% interest and 28% principal. The 30-year loan payment will not be meet the 38/62 ratio until its 18th year.
Principal is the amount borrowed from the bank. In portions, principal is repaid to the bank each month as part of the overall mortgage payment. The portion of principal in each payment increases monthly until the loan is paid in full, which may be in 15 years, 20 years, or 30 years. Paying principal each month increases your home equity, assuming that your home’s value is unchanged. If your home’s value drops, your equity percentage will decrease in spite of reducing your loan’s balance. Similarly, if your home’s value rises, your equity percentage will increase by an amount greater than what you’ve paid in principal.
Interest is the amount you pay the bank for the privilege of borrowing for your home. Interest payments are paid monthly, until the loan is paid in full. The portion of interest paid to the bank each month decreases according to your loan’s amortization schedule. Your mortgage interest paid over the life of your loan is based on your loan term and your mortgage interest rate.