Mortgage calculator
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Frequently asked questions about mortgages
A mortgage calculator is a useful first step when buying a home. It breaks down a loan into estimated monthly payments based on the home price, interest rates, and other factors. This helps you see if the mortgage fits your budget and how much house you can realistically afford.
You can also adjust variables—like location or loan type—to see how different choices affect your payment.
A mortgage is a loan from a bank or lender that helps you buy a home. Since homes are expensive, most buyers need one. You repay the loan in monthly installments over years or decades.
In short, a mortgage makes homeownership possible by spreading the cost over time.
Monthly mortgage payments usually include four parts, known as PITI:
- Principal: The amount you borrow from the lender.
- Interest: The cost of borrowing, calculated as a percentage of your principal.
- Taxes: Property taxes, often collected by your lender and paid on your behalf.*
- Insurance: Homeowners insurance to protect your property.
Some lenders may also include additional costs, such as private mortgage insurance (PMI).
A 20% down payment typically gets you the best rates and terms, but it’s not always required. Options include:
- FHA loans: As little as 3.5% down, great for first-time buyers.
- VA loans: For U.S. military members and families, often with no down payment.
- USDA loans: Available in eligible rural areas, with 0% down for qualified buyers.
Lenders review your financial picture, including:
- Income: Your salary, investments, and other sources.
- Debt: Loans, credit cards, child support, and other obligations.
- DTI ratio: Debt-to-income ratio (monthly debt ÷ gross monthly income). Most lenders prefer a DTI of 36% or lower.
- Credit score: A number between 300 and 850 reflecting your credit history. Higher scores usually mean better loan offers.
You can also use an affordability calculator to estimate your buying power.
- Fixed-rate mortgage: Steady interest rate and predictable payments. Best if you plan to stay long-term.
- Adjustable-rate mortgage (ARM): A Lower initial rate that can rise or fall after a set period. Good if you’ll move before the adjustment kicks in.
- FHA loan: Low down payment option backed by the Federal Housing Administration.
15-Year vs. 30-Year Mortgage
- 15-year loan: Higher monthly payments, but you’ll pay less interest overall.
- 30-year loan: Lower monthly payments, but you’ll pay more in interest long-term.
- Shop for a lower interest rate.
- Extend your loan term (e.g., 30 years instead of 15).
- Buy discount points to reduce your rate.
- Increase your down payment.
- Avoid private mortgage insurance (PMI) by putting down at least 20%.
- Choose a less expensive home.
Pre-approval is when a lender reviews your finances and confirms how much they’re willing to lend. It helps you:
- Know your budget before house hunting.
- Strengthen your offer in competitive markets.
Don’t confuse pre-approval with pre-qualification (a quick estimate without a full financial review).
Typically 90–180 days. If it expires before you buy, you can often extend it by providing updated financial documents:
Common Terms for Affordability
Bi-weekly mortgage:
Pay half your monthly payment every two weeks, resulting in 26 payments a year (faster payoff, less interest).
Escrow:
Third-party account holding money for taxes, insurance, or closing.
Extra payment:
An additional payment beyond your monthly minimum to shorten your loan term.
Homeowners insurance:
Protects your home and belongings, plus liability coverage.
Home sale proceeds:
Money left after paying off mortgages, commissions, and closing costs.
Loan amount:
The total you borrow from the lender.
Loan-to-value (LTV) ratio:
Loan amount ÷ home value. A lower LTV improves loan approval chances.
Long-term mortgage:
A longer loan term, usually with higher interest but more stability.
Lump-sum payment:
A one-time payment toward your mortgage principal.
Monthly mortgage payment:
Your regular bill covering principal, interest, taxes, and insurance.
Mortgage calculator:
Tool for estimating monthly payments.
Mortgage rate:
Interest charged on your loan, either fixed or variable.
Refinance:
Replacing your current mortgage with a new one, often for better terms.
Mortgage term:
The repayment period (e.g., 15, 20, or 30 years).
Pre-tax income:
Earnings before taxes and deductions.
Short-term mortgage:
Shorter repayment period with lower interest but more frequent renewals.
