Mortgage Calculator
Mortgage Calculator
Modify the values and click the Calculate button to use
Mortgage Calculator
The Mortgage Calculator helps estimate the monthly payment due along with other financial costs of owning a home. It is mainly for use by people looking to buy a house in the U.S. The calculator considers common mortgage-related costs like property taxes, home insurance, and PMI. Increase or decrease values to see how it affects the monthly payment. The calculator is mainly intended for use by U.S. consumers.
Mortgages
A mortgage is a loan secured by property, usually real-estate property. Lenders define it as the money borrowed that is used to purchase real estate. In exchange for the loan, the lender (a bank) is given collateral — a lien on the title to the property — until the mortgage is paid off in full. The borrower then repays the lender over a number of years through a series of scheduled payments. The mortgage term is typically 15 or 30 years in the U.S.
Most mortgage payments consist of two parts: principal and interest. The principal is the original amount borrowed. The other portion is interest, which is the cost charged to the borrower for using the lender's money. A small portion of each mortgage payment also goes toward property taxes, homeowner's insurance, and mortgage insurance (if applicable).
Mortgage Calculator Components
The mortgage calculator above will include the following key components:
- Loan amount — the amount borrowed from a lender or bank. In a mortgage, this amount is usually the home price minus the down payment. If the home price is $500,000 and the down payment is $100,000, the loan amount is $400,000.
- Down payment — the portion of the purchase price of the home, usually a percentage of the total price. Typically, mortgage lenders in the U.S. desire at least 20% of a home's value as a down payment. However, there are low down payment options as low as 3%. If the homebuyer makes a down payment of less than 20%, they will be required to pay private mortgage insurance (PMI) until the loan-to-value ratio (LTV) reaches 80%.
- Loan term — the amount of time over which the loan must be repaid in full. Most fixed-rate mortgages run for 10, 15, 20, 25, or 30 years. The shorter the loan term, the more the borrower pays each month, but the less interest they pay overall.
- Interest rate — the percentage of the loan charged as a cost of borrowing. Mortgages can have either fixed or variable rates. With a fixed rate, the interest rate stays the same for the entire term of the FRM loan.
Costs Associated with Home Ownership and Mortgages
Monthly mortgage payments usually comprise the bulk of the financial costs associated with owning a home, but there are other costs to keep in mind. These costs are separated into two categories, recurring and non-recurring.
Recurring Costs
Most recurring costs persist throughout and beyond the life of a mortgage. They are a significant financial factor. Property taxes, home insurance, and HOA fees are the recurring costs. In the calculator, the recurring costs are under "Include Options Below" — costs paid monthly or yearly that are not part of the mortgage payment.
- Property taxes — assessed by municipal or county governments. Tax rates vary greatly. In the U.S., property tax is usually managed by municipal or county governments. All 50 states impose taxes on real estate. In some states, the median property tax rate is as low as 0.1% while in others it is as high as 1.9%. The average property tax rate is 1.1% of the property's value each year.
- Home insurance — covers the cost of damages to a home and other assets owned by the home. This insurance also covers living expenses if the house becomes temporarily uninhabitable. It usually covers accidents that happen on the property. The cost of home insurance varies depending on the market value of the home, the cost to rebuild, the location, and the selected coverage amount.
- Private mortgage insurance (PMI) — protects the mortgage lender if the borrower is unable to repay the loan. PMI is only required when the down payment is less than 20% and the loan amount exceeds 80% of the home's value. The annual PMI cost ranges from 0.3% to 1.5% of the original loan amount per year.
- HOA fee — a fee that is charged to the owner of a condominium or property within a planned unit development. It is used to maintain common areas like landscaping, pools, and community amenities.
- Other costs — includes utilities, home maintenance costs, and anything pertaining to the general upkeep of the property. It is common to spend 1% to 3% of the property value on annual upkeep and maintenance.
Non-Recurring Costs
These costs aren't addressed by the calculator, but they are still important to keep in mind.
- Closing costs — the fees paid at the closing of a real estate transaction. These are non-recurring fees that are part of the deal. They include origination fees, appraisals, home inspections, title insurance, survey fees, credit report charges, and more.
- Initial renovations — some buyers choose to renovate after closing. Examples include replacing broken fixtures, painting, or bigger projects like adding a new room.
- Miscellaneous expenses — new furniture, new appliances, and moving costs are typical non-recurring expenses of a home purchase.
Early Repayment and Extra Payments
In many situations, mortgage borrowers may want to pay off mortgages earlier rather than later. It could be due to several reasons, including wanting to reduce their debt burden, save on interest, or sell the property. Our calculator can factor in monthly, yearly, or one-time extra payments.
Early Repayment Strategies
In general, borrowers can pay off a mortgage loan entirely, or pay a little extra towards the principal to reduce the balance. Borrowers mainly adopt these strategies to save on interest:
- Make extra payments — This is simply an extra payment over and above the monthly payment. On typical long-term mortgage loans, a very big part of the earlier payments will go towards interest rather than the principal. The loan can typically be shortened in this way along with a significant interest saving. A borrower can make extra payments every month, every year, or even just one time. It can be helpful to compare the results of supplementing mortgages with and without extra payments.
- Biweekly payments — The borrower pays half the monthly payment every two weeks. With 52 weeks in a year, this amounts to 26 payments or 13 months of mortgage payments per year. This method is easier for those who receive their paychecks biweekly.
- Refinance to a loan with a shorter term — Refinancing involves taking out a new loan to pay off an old one. Borrowers can refinance from a 30-year to a 15-year loan for a lower interest rate and faster payoff. However, this usually results in a larger monthly payment and may require paying closing costs.
Reasons for Early Payment
Making extra payments offers the following advantages:
- Lower interest costs — Borrowers can save money on interest, which often amounts to tens of thousands of dollars.
- Shorter repayment period — A shortened repayment period means the payoff will come faster than the original term in the mortgage agreement.
- Larger home equity — A larger home equity represents a larger portion of the repayment value of a home.
- Personal satisfaction — The feeling of emotional well-being that can come from freedom from debt obligations.
Drawbacks of Early Repayment
However, extra payments come at a cost. Borrowers should consider the following factors before paying ahead on a mortgage:
- Possible prepayment penalties — A prepayment penalty is an agreement in a mortgage contract that requires the borrower to pay a fee to the lender for paying off the loan before the end of the term. These penalties typically decrease or phase out within 3-5 years.
- Opportunity costs — Paying off a mortgage early may not be ideal if mortgage rates are relatively low compared to other investment rates.
- Capital locked up in the house — Money put into the house is cash that cannot be spent elsewhere, which may cause a borrower to take out an additional loan for unexpected needs.
- Loss of tax deduction — Homeowners in the U.S. can deduct mortgage interest costs from their taxes, which lowers the effective interest rate. Early payments result in less of a deduction.
Brief History of Mortgages in the U.S.
In the early 20th century, buying a home involved saving up a large down payment. Borrowers would have to put 50% down, take out a three or five-year loan, then face a balloon payment at the end of the term.
Only four in ten Americans could afford a home under such conditions. During the Great Depression, one-fourth of homeowners lost their homes.
To remedy this situation, the government created the Federal Housing Administration (FHA) and Fannie Mae. The FHA began insuring long-term mortgage loans, while Fannie Mae purchased mortgages from lending banks, providing liquidity. Both entities helped to bring 30-year mortgages with more modest down payments and government construction standards.
These programs also helped returning soldiers finance a home after World War II and spurred a construction boom in the following decades. The FHA helped borrowers during harder times, such as the inflation crisis of the 1970s and the drop in energy prices in the 1980s.
By 2001, the homeownership rate had reached a record level of 68.1%.
Government involvement also helped during the 2008 financial crisis. The crisis forced a federal takeover of Fannie Mae as it lost billions amid massive defaults, though it returned to profitability by 2012.
The FHA also offered further help amid the nationwide drop in real estate prices. It stepped up, claiming a higher percentage of mortgages amid backing by the Federal Reserve. This helped to stabilize the housing market by 2013. Today, both entities continue to actively insure millions of single-family homes and other residential properties.