How to use this mortgage calculator
Enter the price of the home and the amount you plan to put down. The calculator works out the loan amount and shows what share of the price your down payment covers. Pick a term, enter the interest rate you were quoted, then add your yearly property tax and homeowners insurance. If the home is in a community with a homeowners association, add the monthly dues as well.
The large number is your estimated total monthly housing payment, the figure that matters for your budget. The colored bar shows how that payment splits between the loan itself and the other costs that are usually collected with it through an escrow account.
What makes up a mortgage payment
Lenders often describe a house payment as PITI:
- Principal: the part that pays down what you borrowed.
- Interest: what the lender charges you for the loan.
- Taxes: property tax, usually divided into 12 monthly amounts and held in escrow.
- Insurance: homeowners insurance, also usually paid through escrow.
Two more costs often show up. PMI (private mortgage insurance) is added to conventional loans when the down payment is under 20%. HOA dues are paid to your homeowners association, normally separately from the lender, but they still affect what you can afford.
The mortgage payment formula
Principal and interest are calculated with the standard amortization formula:
M = P × r / (1 − (1 + r)−n)
Where P is the loan amount, r is the monthly interest rate (annual rate ÷ 12) and n is the number of monthly payments. For a $320,000 loan at 6.5% over 30 years: r = 0.065 ÷ 12 ≈ 0.005417, n = 360, which gives a principal and interest payment of about $2,023 per month.
Why most of your early payments go to interest
Interest is charged on the balance you still owe. At the start that balance is at its highest, so most of each payment covers interest. As the balance falls, the interest part shrinks and more of the same fixed payment goes toward principal. Open the amortization schedule above to see this happen year by year. On a 30-year loan, it often takes well over a decade before principal overtakes interest.
Ways to pay less interest
- Make one extra payment a year. On a typical 30-year loan this can cut several years off the term.
- Choose a shorter term. 15-year loans usually come with lower rates and build equity much faster.
- Raise your credit score before applying. Even a quarter-point lower rate adds up over hundreds of payments.
- Put down 20% if you can. This avoids PMI and lowers the amount you finance.
How much house can you afford?
A widely used rule of thumb is 28/36: keep your housing payment under 28% of gross monthly income, and all debt payments combined under 36%. For a household earning $8,000 a month, that is a housing payment up to about $2,240 and total debts up to about $2,880. Treat these numbers as a starting point, not a target. Your own savings goals, job stability and other expenses matter just as much.
Frequently asked questions
How much house can I afford?
A common guideline is that your total housing payment should stay below about 28% of your gross monthly income, and all of your debt payments combined below about 36%. Lenders may allow more, but staying under these levels leaves room for savings and surprises.
What is PMI and when does it go away?
Private mortgage insurance protects the lender when you put down less than 20% on a conventional loan. On most conventional loans you can ask to cancel it once your balance reaches 80% of the original home value, and it ends automatically at 78%.
Is a 15-year or 30-year mortgage better?
A 15-year loan has a higher monthly payment but a lower rate and far less total interest. A 30-year loan keeps the payment lower and more flexible. The right choice depends on your budget, other goals and how long you plan to stay in the home.
Does this calculator include closing costs?
No. Closing costs are usually paid once at closing and typically run 2% to 5% of the loan amount. Budget for them separately from your down payment.
Results are estimates for educational purposes. Your actual rate, taxes and insurance will depend on your lender, location and credit profile.