🏠 Mortgage Calculator
Enter your home price, down payment, interest rate, and loan term to see your monthly payment, total interest, and a full year-by-year amortization schedule.
How Does a Mortgage Work?
A mortgage is a loan secured against real property. The lender advances you a lump sum (the principal) to purchase a property, and you repay that sum plus interest in regular monthly instalments over an agreed term — typically 15 or 30 years. If you fail to make payments, the lender has the right to take ownership of the property through a legal process called foreclosure.
Each monthly payment is split into two components: the portion that reduces your outstanding principal, and the portion that pays interest to the lender. In the early years of a mortgage, the vast majority of each payment goes toward interest. Over time, as your balance decreases, the interest portion falls and the principal portion grows — this is the mechanics of amortization.
The Mortgage Formula
The standard formula for calculating a fixed-rate monthly mortgage payment is:
Where:
M = monthly payment
P = principal loan amount
r = monthly interest rate (annual rate ÷ 12)
n = number of payments (years × 12)
For example, a $400,000 mortgage at 7% annual interest over 30 years: r = 7%/12 = 0.5833%, n = 360 payments, giving a monthly payment of $2,661.
Fixed vs Adjustable Rate Mortgages
The two main categories of mortgage differ in how the interest rate is set over time:
| Feature | Fixed Rate | Adjustable Rate (ARM) |
|---|---|---|
| Interest Rate | Locked for the entire term | Fixed for initial period, then adjusts periodically |
| Payment Predictability | Identical payment every month | Payment changes when rate adjusts |
| Initial Rate | Usually higher than ARM | Usually lower than fixed |
| Best For | Long-term owners, rate uncertainty | Short-term owners, falling rate environments |
| Risk | Low — payment is predictable | Higher — payment can increase significantly |
ARMs are typically named by their fixed/adjustment schedule. A "5/1 ARM" has a fixed rate for 5 years, then adjusts annually. The initial rate is lower than a fixed mortgage, making it attractive if you plan to sell or refinance before the adjustment period begins.
The Down Payment
The down payment is the portion of the purchase price you pay upfront, not financed by the mortgage. Most conventional loans require a minimum of 3–20% down. The down payment amount affects your mortgage in several important ways:
- Loan amount: A larger down payment means a smaller loan and lower monthly payments
- Interest rate: Higher down payments often qualify for lower interest rates
- Private Mortgage Insurance (PMI): Down payments below 20% typically require PMI — an additional monthly premium of 0.5–1.5% of the loan amount annually
- Equity: A larger down payment gives you immediate home equity, providing a financial cushion
Understanding Amortization
Amortization describes how loan payments are structured to fully pay off the debt over the loan term. In a 30-year mortgage, the early payments are heavily interest-weighted — sometimes over 80% of the payment is interest in the first year. This means that if you sell your home after 5 years, you've paid relatively little principal and built less equity than you might expect.
This is why extra principal payments — even small ones — have an outsized effect early in the loan. An extra $200/month on a 30-year, $400,000 mortgage at 7% saves over $83,000 in interest and cuts nearly 5 years off the loan term.
Total Cost of Homeownership
The monthly mortgage payment is only part of the cost of owning a home. A realistic budget should include:
- Property taxes: Typically 0.5–2.5% of home value per year, depending on location
- Home insurance: Typically $800–$2,000/year for most homes
- HOA fees: $0–$500+/month depending on the community
- Maintenance and repairs: Typically 1–2% of home value per year as a rule of thumb
- PMI: 0.5–1.5% of loan amount annually if down payment is below 20%
A common guideline is that total housing costs should not exceed 28% of gross monthly income (the "front-end ratio"), and total debt payments should not exceed 36% of gross income (the "back-end ratio"). Lenders use these ratios — along with your credit score, debt-to-income ratio, and employment history — to determine how much they'll lend you.
Tips for Getting the Best Mortgage Rate
- Improve your credit score: Every 20-point increase in your score can save 0.1–0.25% in interest rate. Pay down credit card balances and avoid new inquiries before applying.
- Shop multiple lenders: Rates vary by 0.5–1% between lenders for the same borrower. Getting 3–5 quotes is worth the effort — it can save tens of thousands over the life of the loan.
- Consider paying points: Mortgage points are upfront payments (1 point = 1% of loan amount) that reduce your interest rate. Generally worthwhile if you plan to stay in the home long enough to break even.
- Time your rate lock: Once you're under contract, you can lock your rate for 30–60 days to protect against rate increases while your loan processes.