Mortgage Calculator

How Mortgage Payments Are Calculated

Your monthly mortgage payment is determined using the standard loan amortization formula. For a fixed-rate mortgage, the monthly Principal & Interest (P&I) payment is calculated as:

M = P × [r(1+r)ⁿ] / [(1+r)ⁿ − 1]

Where: P = loan amount (home price minus down payment), r = monthly interest rate (annual rate ÷ 12), n = total number of monthly payments (loan term in years × 12).

Over the life of a fixed-rate mortgage, your monthly payment stays the same — but the proportion going to principal vs interest changes each month. Early payments are mostly interest; later payments are mostly principal. This is called amortization.

What Affects Your Mortgage Rate?

• Credit score: The most impactful factor. Borrowers with 760+ scores typically qualify for the best rates; every 20-point drop can increase your rate by 0.1–0.25%.
• Down payment: Putting down 20% or more eliminates Private Mortgage Insurance (PMI), which adds 0.5–1.5% of the loan to your annual costs.
• Loan-to-Value (LTV) ratio: The lower your loan compared to the home's appraised value, the lower the risk to the lender and the better the rate.
• Loan term: 15-year mortgages typically carry rates 0.5–0.75% lower than 30-year loans.
• Loan type: Conventional, FHA, VA, and USDA loans each have different rate structures and requirements.
• Federal Reserve policy: Mortgage rates move broadly in relation to the 10-year Treasury yield, which is influenced by the Fed's federal funds rate target.

30-Year vs 15-Year Mortgage

The choice between a 30-year and 15-year mortgage is one of the most impactful financial decisions a homebuyer makes. Here is how they compare:

• 30-year mortgage: Lower monthly payments (roughly 40% less than a 15-year), making homeownership more accessible. However, you pay significantly more interest over the life of the loan — often 2–3× the principal amount on a 30-year loan.
• 15-year mortgage: Higher monthly payment, but you build equity twice as fast, pay far less total interest, and own your home free and clear in half the time. The interest rate is also typically 0.5–0.75% lower, compounding the savings.

Use the calculator above to run both scenarios and compare the total cost of each option for your specific situation.

Down Payment Guide

The conventional wisdom is to put down 20%, but this is not always necessary or even optimal:

• 3–5%: Available through conventional loans (Fannie/Freddie) for first-time buyers with good credit. PMI required.
• 3.5%: FHA loan minimum for credit scores 580+
• 10%: Reduces PMI costs and monthly payment significantly
• 20%+: Eliminates PMI entirely and typically secures the best rate

Note: Property tax (estimated at 1% annually) and insurance (estimated at 0.5% annually) shown in the calculator are averages. Actual amounts vary significantly by location and insurer.

Frequently Asked Questions

What is PMI? Private Mortgage Insurance protects the lender if you default when your down payment is less than 20%. It typically costs 0.5–1.5% of the loan amount annually and can be cancelled once you reach 20% equity.

Should I pay extra toward principal? Yes, if your mortgage has no prepayment penalty. Even one extra principal payment per year on a 30-year mortgage can shave 4–6 years off the loan and save tens of thousands in interest.

What is an ARM vs fixed-rate mortgage? A fixed-rate mortgage locks your interest rate for the entire loan term. An Adjustable-Rate Mortgage (ARM) has a fixed rate for an initial period (3, 5, 7, or 10 years) then adjusts annually based on market indices, introducing rate risk.

⚠️ Financial Disclaimer: This calculator is for informational and educational purposes only and does not constitute financial or mortgage advice. Rates, fees, taxes, and eligibility vary by lender, location, and borrower profile. Consult a licensed mortgage professional before making home financing decisions.