How to use the mortgage calculator
Under "Home price," enter the price (if you're buying) or the current value (if you're refinancing). NerdWallet also has a refinancing calculator.
Under "Down payment," enter the dollar amount of your down payment (if you’re buying) or the amount of equity you have (if refinancing). Or instead of entering a dollar amount, enter the down payment percentage in the window to the right. A down payment is the cash you pay upfront for a home, and home equity is the value of the home, minus what you owe.
On desktop, under "Interest rate" (to the right), enter the rate. Under "Loan term," click the plus and minus signs to adjust the length of the mortgage in years.
On mobile devices, tap "Refine Results" to find the field to enter the rate and use the plus and minus signs to select the "Loan term."
You may enter your own figures for property taxes, homeowners insurance and homeowners association fees, if you don’t wish to use NerdWallet’s estimates. Edit these figures by clicking on the amount currently displayed.
The mortgage calculator lets you click "Compare common loan types" to view a comparison of different loan terms. Click "Amortization" to see how the principal balance, principal paid (equity) and total interest paid change year by year. On mobile devices, scroll down to see "Amortization."
» MORE: What is mortgage amortization?
How a mortgage calculator helps you
Determining what your monthly house payment will be is an important part of figuring out how much house you can afford. That monthly payment is likely to be the biggest part of your cost of living.
Using NerdWallet’s mortgage calculator lets you estimate your mortgage payment when you buy a home or refinance. You can change loan details in the calculator to run scenarios. The calculator can help you decide:
The home loan term length that’s right for you. 30-year fixed-rate mortgage lower your monthly payment, but you’ll pay more interest over the life of the loan. A 15-year fixed-rate mortgage reduce the total interest you'll pay, but your monthly payment will be higher. c
If an ARM is a good option. Adjustable-rate mortgages start with a "teaser" interest rate, and then the loan rate changes — higher or lower — over time. A 5/1 ARM can be a good choice, particularly if you plan on being in a home for just a few years. You’ll want to be aware of how much your monthly mortgage payment can change when the introductory rate expires, especially if interest rates are trending higher.
If you’re buying too much home. The mortgage payment calculator can give you a reality check on how much you can expect to pay each month, especially when considering all the costs, including taxes, insurance and private mortgage insurance.
If you’re putting enough money down. With minimum down payments commonly as low as 3%, it's easier than ever to put just a little money down. The mortgage payment calculator can help you decide what the best down payment may be for you.
How lenders decide how much you can afford to borrow
Mortgage lenders are required to assess your ability to repay the amount you want to borrow. A lot of factors go into that assessment, and the main one is debt-to-income ratio.
Your debt-to-income ratio is the percentage of pretax income that goes toward monthly debt payments, including the mortgage, car payments, student loans, minimum credit card payments and child support. Lenders look most favorably on debt-to-income ratios of 36% or less — or a maximum of $1,800 a month on an income of $5,000 a month before taxes.
» MORE: Calculate your debt-to-income ratio
Typical costs included in a mortgage payment
If your mortgage payment included just principal and interest, you could use a bare-bones mortgage calculator. But most mortgage payments include other charges as well. Here are the key components of the monthly mortgage payment:
Principal: This is the amount you borrow. Each mortgage payment reduces the principal you owe.
Interest: What the lender charges you to lend you the money. Interest rates are expressed as an annual percentage.
Property taxes: The annual tax assessed by a government authority on your home and land. You pay about one-twelfth of your annual tax bill with each mortgage payment, and the servicer saves them in an escrow account. When the taxes are due, the loan servicer pays them.
Homeowners insurance: Your policy covers damage and financial losses from fire, storms, theft, a tree falling on your house and other bad things. As with property taxes, you pay roughly one-twelfth of your annual premium each month, and the servicer pays the bill when it's due.
Mortgage insurance: If your down payment is less than 20% of the home’s purchase price, you’ll likely pay mortgage insurance. It protects the lender’s interest in case a borrower defaults on a mortgage. Once the equity in your property increases to 20%, the mortgage insurance is canceled, unless you have an FHA loan backed by the Federal Housing Administration.
Typically, when you belong to a homeowners association, the dues are billed directly, and it's not added to the monthly mortgage payment. Because HOA dues can be easy to forget, they're included in NerdWallet's mortgage calculator.
Reducing monthly mortgage payments
The mortgage calculator lets you test scenarios to see how you can reduce the monthly payments:
Your monthly payment can go up over time if:
Extend the term (the number of years it will take to pay off the loan). With a longer term, your payment will be lower but you’ll pay more interest over the years. Review your amortization schedule to see the impact of extending your loan.
Buy less house. Taking out a smaller loan means a smaller monthly mortgage payment.
Avoid paying PMI. With a down payment of 20% or more, you won’t have to pay private mortgage insurance. Similarly, keeping at least 20% equity in the home lets you avoid PMI when you refinance.
Get a lower interest rate. Making a larger down payment can not only let you avoid PMI, but reduce your interest rate, too. That means a lower monthly mortgage payment.
Monthly mortgage payments can go up
Property taxes or homeowners insurance premiums rise. These costs are included in most mortgage payments.
You incur a late payment fee from your mortgage loan servicer.
You have an adjustable-rate mortgage and the rate rises at the adjustment period.
Formula for calculating a mortgage payment
The mortgage payment calculation looks like this: M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
The variables are as follows:
M = monthly mortgage paymentP = the principal amounti = your monthly interest rate. Your lender likely lists interest rates as an annual figure, so you’ll need to divide by 12, for each month of the year. So, if your rate is 5%, then the monthly rate will look like this: 0.05/12 = 0.004167.n = the number of payments over the life of the loan. If you take out a 30-year fixed rate mortgage, this means: n = 30 years x 12 months per year, or 360 payments.
» MORE FOR CANADIAN READERS: Canada mortgage payment calculator
I have an in-depth understanding of mortgage calculations, and I'm here to provide comprehensive information related to the concepts mentioned in the article about how to use a mortgage calculator.
Firstly, the process involves entering essential details into the mortgage calculator to estimate your monthly house payment. Here's a breakdown of the key concepts mentioned:
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Home Price or Current Value:
- For buyers: Enter the price.
- For refinancing: Enter the current value.
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Down Payment:
- For buyers: Enter the dollar amount of your down payment.
- For refinancing: Enter the amount of equity you have.
- Alternatively, enter the down payment percentage.
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Interest Rate and Loan Term:
- On desktop: Enter the interest rate to the right.
- Adjust the loan term in years using plus and minus signs.
- On mobile: Tap "Refine Results" to find the field for the interest rate and adjust the loan term.
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Additional Costs:
- Enter figures for property taxes, homeowners insurance, and homeowners association fees if not using NerdWallet’s estimates.
- Edit these figures as needed.
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Calculator Features:
- Compare common loan types for different terms.
- Explore amortization to track principal balance, equity, and total interest paid year by year.
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How a Mortgage Calculator Helps:
- Estimate monthly payments for buying or refinancing.
- Run scenarios to decide on the home loan term length.
- Consider options like a 30-year fixed-rate mortgage for lower monthly payments or a 15-year fixed-rate mortgage for less total interest paid.
- Evaluate if an Adjustable-Rate Mortgage (ARM) is suitable.
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Lender Assessment:
- Lenders assess your ability to repay based on factors like the debt-to-income ratio.
- Debt-to-income ratio is the percentage of income going towards monthly debt payments.
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Typical Costs in a Mortgage Payment:
- Principal and interest.
- Property taxes (paid monthly, saved in escrow).
- Homeowners insurance (paid monthly, saved in escrow).
- Mortgage insurance if down payment is <20% (cancellable at 20%).
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Reducing Monthly Payments:
- Extend the loan term.
- Consider a smaller loan for a smaller payment.
- Avoid PMI with a 20% down payment.
- Get a lower interest rate with a larger down payment.
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Factors Affecting Monthly Payments:
- Property taxes or homeowners insurance increase.
- Late payment fees.
- Adjustable-rate mortgage rates rise.
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Formula for Calculating Mortgage Payment:
- M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
- Where M is the monthly mortgage payment, P is the principal amount, i is the monthly interest rate, and n is the number of payments.
Feel free to ask if you have any specific questions or if there's more information you'd like to explore.
