Mortgage Calculator

Understanding Mortgages

The Mortgage Calculator helps estimate the monthly payment due along with other financial costs associated with mortgages. There are options to include extra payments or annual percentage increases of common mortgage-related expenses. The calculator is mainly intended for use by U.S. residents.

What is a Mortgage?

A mortgage is a loan secured by property, usually real estate property. Lenders define it as the money borrowed to pay for real estate. In essence, the lender helps the buyer pay the seller of a house, and the buyer agrees to repay the money borrowed over a period of time, usually 15 or 30 years in the U.S. Each month, a payment is made from buyer to lender. A portion of the monthly payment is called the principal, which is the original amount borrowed. The other portion is the interest, which is the cost paid to the lender for using the money. There may be an escrow account involved to cover the cost of property taxes and insurance. The buyer cannot be considered the full owner of the mortgaged property until the last monthly payment is made. In the U.S., the most common mortgage loan is the conventional 30-year fixed-interest loan, which represents 70% to 90% of all mortgages. Mortgages are how most people are able to own homes in the U.S.

Mortgage Calculator Components

A mortgage usually includes the following key components. These are also the basic components of a mortgage calculator.

• Loan amount: The amount borrowed from a lender or bank. In a mortgage, this amounts to the purchase price minus any down payment.
• Down payment: The upfront payment of the purchase, usually a percentage of the total price. Typically, mortgage lenders want the borrower to put 20% or more as a down payment. If less than 20% is put down, Private Mortgage Insurance (PMI) is usually required.
• Loan term: The amount of time over which the loan must be repaid in full. Most fixed-rate mortgages are for 15, 20, or 30-year terms.
• Interest rate: The percentage of the loan charged as a cost of borrowing. Rates can be fixed (FRM) or adjustable (ARM). The calculator above uses fixed rates.

Costs Associated with Home Ownership

Monthly mortgage payments usually comprise the bulk of the financial costs associated with owning a house, but there are other substantial costs to keep in mind.

Recurring Costs

These persist throughout the life of the mortgage and often increase with inflation.

• Property taxes: A tax paid to local governments, averaging about 1.1% of property value annually in the U.S.
• Home insurance: Protects the owner from accidents and liability. Costs vary by location and coverage.
• Private Mortgage Insurance (PMI): Protects the lender if the borrower defaults. Required if the down payment is under 20%.
• HOA fee: Fees paid to a Homeowner’s Association for neighborhood maintenance and amenities.
• Other costs: Maintenance, utilities, and general upkeep, often estimated at 1% of property value annually.

Non-Recurring Costs

One-time fees typically paid at closing, such as closing costs (attorney fees, title service, inspection, etc.), initial renovations, and moving expenses.

Early Repayment Strategies

Borrowers may want to pay off mortgages earlier to save on interest. Strategies include:

• Make extra payments: Paying extra over the monthly amount reduces the principal balance directly, lowering total interest paid.
• Biweekly payments: Paying half the monthly payment every two weeks results in 13 full payments per year instead of 12, shortening the loan term.
• Refinance: Taking out a new loan with a shorter term (e.g., 15 years) often secures a lower interest rate but increases monthly payments.