Monthly payment breakdown
Principal & interest
How does a mortgage calculator help me?
When deciding how much house you can afford, one of the most important pieces to determine is whether a home will fit into your monthly budget. A mortgage calculator helps you understand the monthly cost of a home. And ours will allow you to enter different down payments and interest rates to help determine what is affordable for you.
How to use this free mortgage calculator?
Play around with different home prices, locations, down payments, interest rates, and mortgage lengths to see how they impact your monthly mortgage payments.
Increasing your down payment and decreasing your interest rate and mortgage term length will make your monthly payment go down. Taxes, insurance, and HOA fees will vary by location. If you enter a down payment amount that’s less than 20% of the home price, private mortgage insurance (PMI) costs will be added to your monthly mortgage payment. As the costs of utilities can vary from county to county, we’ve included a utilities estimate that you can break down by service. If you’re thinking about buying a condo or into a community with a Homeowners Association (HOA), you can add HOA fees.
The only amounts we haven’t included are the money you’ll need to save for annual home maintenance/repairs or the costs of home improvements. To see how much home you can afford including these costs, take a look at the Better home affordability calculator.
Fun fact: Property tax rates are extremely localized, so two homes of roughly the same size and quality on either side of a municipal border could have very different tax rates. Buying in an area with a lower property tax rate may make it easier for you to afford a higher-priced home.
How much monthly mortgage payment can I afford?
Lenders determine how much you can afford on a monthly housing payment by calculating your debt-to-income ratio (DTI). The maximum DTI you can have in order to qualify for most mortgage loans is often between 45-50%, with your anticipated housing costs included.
Your DTI is the balance between your income and your debt. It helps lenders understand how safe or risky it is for them to approve your loan. A DTI ratio represents how much of your gross monthly income is spoken for by creditors, and how much of it is left over to you as disposable income. It’s most commonly written as a percentage. For example, if you pay half your monthly income in debt payments, you would have a DTI of 50%.
Formula for calculating your debt-to-income (DTI) ratio:
Here’s an example of what calculating your DTI might look like:
How to calculate monthly mortgage payments?
Your monthly mortgage payment includes loan principal and interest, property taxes, homeowners insurance, and mortgage insurance (PMI), if applicable. While not typically included in your mortgage payment, homeowners also pay monthly utilities and sometimes pay homeowners association (HOA) fees, so it’s a good idea to factor these into your monthly budget. This mortgage calculator factors in all these typical monthly costs so you can really crunch the numbers.
Formula for calculating monthly mortgage payments
The easiest way to calculate your mortgage payment is to use a calculator, but for the curious or mathematically inclined, here’s the formula for calculating principal and interest yourself:
M is monthly mortgage payments
P is the principal loan amount (the amount you borrow)
r is the monthly interest rate
(annual interest rate divided by 12 and expressed as a decimal)
if the annual interest rate is 5%,
the monthly rate would be 0.05/12 = .00417, or .417%
n is the total number of payments in months
for a 30-year loan, n = 30×12 = 360 months
Here’s a simple example:
This formula assumes a fixed-rate mortgage, where the interest rate remains constant throughout the loan term. And remember, you’ll still need to add on taxes, insurance, utilities, and HOA fees if applicable.
How is Better’s free mortgage calculator different?
This mortgage calculator shows your payments with taxes and insurance
When you own a home, you’re responsible for paying property taxes and homeowners insurance. Often these costs will be rolled in with your monthly mortgage payments as it’s important—to both you and your lender—that these bills stay current to protect your investment.
The property taxes you contribute are used to finance the services provided by your local government to the community. These services encompass schools, libraries, roads, parks, water treatment, police, and fire departments. Even after your mortgage has been fully paid, you will still need to pay property taxes. If you neglect your property taxes, you run the risk of losing your home to your local tax authority.
Your lender will usually require you to have homeowners insurance while you're settling your mortgage. This is a common practice among lenders because they understand that nobody wants to continue paying a mortgage on a home that's been damaged or destroyed.
Here's an interesting fact: Once you fully own your home, the choice to maintain homeowners insurance is entirely up to you. However, to ensure your home is protected against damages caused by fires, lightning strikes, and natural disasters that are common in your area, it is highly recommended to keep it. Therefore, always factor in these costs when using a Mortgage Calculator.
This mortgage calculator shows your mortgage costs with PMI
PMI, an abbreviation for private mortgage insurance, aids potential homeowners in qualifying for a mortgage without the necessity of a 20% down payment. By opting for a lower down payment and choosing a mortgage with PMI, you can purchase a home sooner, begin accruing equity, and keep cash available for future needs. This can all be calculated using this Mortgage Calculator.
Choosing a mortgage with PMI is a popular option: 71% of first-time homebuyers had a down payment of less than 20% in July 2021. In 2020, the median down payment for first-time homebuyers was just 7%, and it hasn’t risen above 10% since 1989.
PMI is automatically removed from conventional mortgages once your home equity reaches 22%. Alternatively, you can request the removal of PMI once you've accumulated at least 20% home equity.
This mortgage calculator includes HOA fees
Homeowners association (“HOA”) fees are typically charged directly by a homeowners association, but as HOA fees come part and parcel with condos, townhomes, and planned housing developments, they’re an essential factor to consider when calculating your mortgage costs.
Homes that share structural elements, such as roofs and walls, or community amenities like landscaping, pools, or BBQ areas, often require homeowners to pay HOA fees for the maintenance of these shared features. It's important to factor in these costs during your budget planning stage, especially considering that HOA fees typically increase annually. HOAs may also charge additional fees known as ‘special assessments’ to cover unexpected expenses from time to time.
Average mortgage payment
The average mortgage payment in the United States can vary significantly depending on the location and prevailing market conditions. In some areas, where the cost of living is higher, mortgage payments tend to be higher as well. Conversely, in more affordable regions, mortgage payments may be relatively lower.
It's worth noting that the average mortgage payment can also be influenced by the type of mortgage chosen by homebuyers. Fixed-rate mortgages, for example, have a consistent payment amount throughout the loan term, while adjustable-rate mortgages may have payments that fluctuate based on changes in interest rates.
Also, the size of the down payment can also impact the average mortgage payment. A larger down payment can reduce the loan amount and, consequently, lower the monthly payment. On the other hand, a smaller down payment may result in a higher loan amount and, therefore, a higher monthly payment.
How much am I paying towards principal vs interest?
Payments towards loans or mortgages are typically allocated between two categories: principal and interest. For reference, principal represents the original amount borrowed. In contrast, interest refers to the cost of borrowing money.
Payment allocation is based on the concept of amortization. In an amortizing loan, payments are structured to cover both principal and interest over the loan's term. Amortization is a systematic approach used to spread out loan payments evenly over time. It ensures that each payment contributes towards reducing the principal while covering the accrued interest from the prior period. As the loan progresses, a larger portion of each payment is allocated towards principal reduction, ultimately resulting in the complete repayment of the loan.
At the beginning of the loan term, the majority of each payment goes towards interest. This is because the principal balance is still high, and the interest is calculated based on the outstanding balance. As the loan progresses, the principal balance decreases, resulting in lower interest charges. Therefore, a larger portion of each payment is allocated towards reducing the principal balance.
What are the benefits of a 15-year mortgage vs 30?
One of the biggest decisions you'll make in your path to homeownership is choosing between a 15-year or 30-year mortgage. While both options have their merits, understanding the differences and weighing the pros and cons is essential in making the best decision for you.
Pros and cons of a 15-year mortgage
One of the primary advantages of a 15-year mortgage is the shorter term – which allows you to be debt-free sooner but also results in substantial interest savings over the life of the loan. The interest savings over the life of the loan can be substantial, allowing you to allocate those funds towards other financial goals, such as saving for retirement or your children’s education.
While a 15-year mortgage offers several advantages, there are also some considerations to keep in mind. One is the higher monthly payment. The shorter term means you’ll likely need to make higher payments each month, which could limit your financial flexibility. Ultimately the decision to choose a 15-year mortgage depends on your specific financial goals, budget, and desired financial flexibility.
Pros and cons of a 30-year mortgage
A 30-year mortgage offers its own set of benefits – the most significant being a lower monthly payment that can result because your mortgage is spread out over a longer term. This can make homeownership more affordable and leave room for other expenses and investments. A 30-year mortgage also provides financial flexibility, so in the case you come across a period of financial difficulty, lower monthly payments can alleviate some of the pressure in times of uncertainty.
While a 30-year mortgage offers flexibility and affordability in the short term, it comes with some drawbacks that you should consider. The most notable disadvantage is the higher total cost over time. With a longer term, you’ll end up paying more in interest over the life of the loan compared to a shorter-term mortgage, such as a 15-year mortgage. Also, the slower rate of equity growth can be a disadvantage for those looking to build wealth through property value appreciation. With a 30-year mortgage, it may take longer to reach a point where you can utilize your home’s equity for other financial goals, such as renovations, investments, or education expenses. This slower rate of equity growth can be a trade-off for the lower monthly payments.
As you can see, it’s important to carefully consider your financial goals and circumstances when deciding on the term of your mortgage.
How to calculate how much house you can afford
Understanding mortgage basics is crucial to calculating how much house you can afford. For the sake of ease, we suggest using our home affordability calculator which does the work for you!
Next steps to buying a house
There are 8 steps to buying a house and by using this calculator you’ve completed step 2 (calculating your home affordability) and maybe even step 1 (getting your finances in order).
The next step is getting pre-approved. A mortgage pre-approval with Better Mortgage takes as little as 3-minutes and doesn’t impact your credit score. It’s a free, no-commitment way to see how much home you can buy, the mortgages you qualify for, and the range of interest rates you’ll be offered.
If you’re ready to buy a home now, our definitive home buying checklist can walk you through everything you need to know to get the home you want. With your Better Mortgage pre-approval letter in hand, you’ll be able to show sellers and real estate agents that you mean business—giving you an edge over homebuyers that don’t have this kind of proof that they’re financially ready to purchase. And by working with an agent from Better Real Estate and funding with Better Mortgage, you’ll save $2,000 on closing costs, and save up to $8,200 on average over the life of your loan.**
**The average lifetime savings estimate is based on a comparison of the Freddie Mac Primary Mortgage Market Survey’s (PMMS) 30-year fixed-rate mortgage product with Better Mortgage’s own offered rate for a comparable mortgage product between Jan ‘20 - Dec ‘20. PMMS is based on conventional, conforming fully-amortizing home purchase loans for borrowers with a loan-to-value of 80 percent and with excellent credit. Better Mortgage’s offered rate is based on pricing output for a 30-year fixed-rate mortgage product with a 30-day lock period for a single-family, owner-occupied residential property and a borrower with excellent (760 FICO) credit and a loan-to-value ratio of 80 percent. Individual savings could vary based on current market rates, property type, loan amount, loan-to-value, credit score, debt-to-income ratio and other variables.