Mortgage Calculator

A mortgage is a loan used to purchase a property, secured by the home itself. You borrow money from a lender and agree to repay it over a set period (typically 15-30 years) with interest. The lender holds a claim on the property until the loan is fully paid off. Mortgages allow buyers to own homes while spreading the cost across many years.

Your interest rate determines how much you'll pay to borrow money. Fixed-rate mortgages maintain the same rate throughout the loan term, while adjustable-rate mortgages (ARMs) can fluctuate. Even a 0.5% difference in rates can significantly impact your total payment over time.

The down payment is the initial amount you pay upfront. While 20% is traditional, many programs allow as little as 3-5%. A larger down payment reduces your loan amount, monthly payments, and may eliminate private mortgage insurance (PMI) requirements.

PMI protects the lender if you default on your loan. It's typically required when your down payment is less than 20%. PMI costs 0.5-1.5% of the loan amount annually. Once you reach 20% equity, you can request PMI removal to lower your monthly payment.

Property taxes are annual fees based on your home's assessed value. Rates vary by location, typically ranging from 0.5% to 2.5% of home value. These taxes fund local services like schools, roads, and emergency services. Most lenders include them in your monthly mortgage payment.

Homeowners insurance protects your property from damage, theft, and liability claims. Lenders require insurance to protect their investment. Costs average $1,200-$2,000 annually but vary based on location, home value, coverage level, and local risk factors like weather.

Amortization is how your mortgage payment is split between principal and interest over time. Early payments are mostly interest, while later payments primarily reduce principal. Understanding this schedule helps you see how equity builds and plan extra payments strategically.

Common loan terms are 15 and 30 years. A 30-year mortgage offers lower monthly payments but higher total interest. A 15-year mortgage builds equity faster with less interest paid overall, but requires higher monthly payments. Choose based on your budget and financial goals.

Making extra principal payments reduces your loan balance faster, saves thousands in interest, and shortens your loan term. Even small additional payments make a significant difference. One extra payment per year can reduce a 30-year mortgage by several years.

Refinancing replaces your current mortgage with a new one, potentially lowering your interest rate, changing your loan term, or accessing home equity. Consider refinancing when rates drop 0.75-1% below your current rate, or when you want to switch from an ARM to a fixed-rate mortgage.

Your credit score significantly affects your mortgage rate. Scores above 740 typically qualify for the best rates, while scores below 620 may face higher rates or difficulty qualifying. Improving your credit by even 20-30 points before applying can save thousands over the loan term.

Closing costs are fees paid when finalizing your mortgage, typically 2-5% of the loan amount. They include appraisal fees, title insurance, origination fees, and attorney costs. Some lenders offer no-closing-cost mortgages by rolling fees into the loan or charging a higher interest rate.

Fixed-rate mortgages offer payment stability with the same rate throughout the loan. ARMs start with lower rates that adjust periodically based on market conditions. ARMs suit short-term homeowners, while fixed-rate mortgages benefit those planning to stay long-term or prefer predictable payments.

First-time buyers can access special programs like FHA loans (3.5% down), VA loans (0% down for veterans), and USDA loans (0% down in rural areas). Many states and cities offer down payment assistance grants and tax credits. Research local programs to maximize your buying power.

Your debt-to-income (DTI) ratio compares monthly debt payments to gross income. Most lenders prefer DTI below 43%, though some allow up to 50%. Lower DTI improves loan approval chances and may qualify you for better rates. Pay down debts before applying to improve your ratio.

Escrow accounts hold funds for property taxes and insurance. Your lender collects monthly payments, then pays these bills on your behalf when due. This ensures timely payments and spreads large annual costs across 12 months. Some lenders waive escrow with 20% equity, letting you manage payments directly.

Pre-qualification is an informal estimate based on self-reported information. Pre-approval involves a credit check and document verification, providing a firm loan amount. Pre-approval strengthens your offer, shows sellers you're serious, and speeds up closing. Always get pre-approved before house hunting.

Use the 28/36 rule: spend no more than 28% of gross income on housing and 36% on total debt. Factor in all costs including HOA fees, maintenance, utilities, and future expenses. Getting pre-approved for the maximum doesn't mean you should spend it all. Leave room for savings, emergencies, and lifestyle expenses.