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Free Mortgage Calculator

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Understanding Mortgage Payments: A Simplified Guide

Navigating the complexities of mortgage payments can be daunting, but using Bankrate’s Mortgage Calculator simplifies this task, turning it into a straightforward and swift process.

Step-by-Step Guide:

  1. Home Price: Begin by entering the purchase price of the house or its current market value in the “Home price” field, depending on whether you’re buying a new home or refinancing your existing one.
  2. Down Payment: In the “Down payment” area, input either the amount you’re putting down as a down payment when buying a home, or the equity you currently have if you’re refinancing. Remember, a down payment is the initial amount you pay when purchasing a home, and equity is the home’s value minus any outstanding mortgage balance. You have the option to enter this as either a dollar figure or as a percentage of the home’s purchase price.
  3. Loan Length: Move to the “Length of loan” section. Here, select your loan term, which could be 30, 20, 15, or 10 years. The calculator will then adjust the repayment schedule based on your choice.
  4. Interest Rate: Then, in the “Interest rate” field, type in your anticipated interest rate. The calculator automatically sets this to the current average rate, but you can modify it as needed. This rate will differ based on whether you are purchasing a new home or refinancing an existing one.

As you input these details, the calculator dynamically updates to show the new principal and interest amounts. Additionally, Bankrate’s tool provides estimates for property taxes, homeowners insurance, and homeowners association fees. These figures can be adjusted or even disregarded while you’re comparing loan options, as they might be included in your escrow payment but do not impact your principal and interest.

Components of a Mortgage Payment

Your mortgage payment primarily consists of two elements: the principal and the interest. The principal is the loan amount you’ve borrowed, and the interest is the charge imposed by the lender for borrowing this amount. Your lender may also collect funds each month for escrow, which are then used to pay your property taxes and insurance premiums.

  • Principal: The loan amount borrowed from the lender.
  • Interest: The charge for borrowing the money, typically expressed as an annual percentage.
  • Property Taxes: Assessed annually by local authorities, these can be paid monthly if you have an escrow account.
  • Homeowners Insurance: This covers losses and damages to your property due to various incidents. Depending on your location, you might need additional policies for floods, hurricanes, or earthquakes. Similar to property taxes, these are paid monthly and handled by your lender or servicer.
  • Mortgage Insurance: Required if your down payment is below 20% of the home’s purchase price, this is also included in your monthly payment.

Mortgage Payment Calculation Formula

For those who enjoy crunching numbers, here’s a formula to manually calculate your mortgage payments:

M = P × r × (1 + r)^n / ((1 + r)^n - 1)


  • M is your total monthly mortgage payment.
  • P is the principal loan amount.
  • r is your monthly interest rate, derived by dividing your annual rate by 12.
  • n is the total number of payments (years of the loan term multiplied by 12).

This formula helps you understand how much house you can afford. Using Bankrate’s Mortgage Calculator can simplify this process, allowing you to adjust your down payment or loan term to find the best fit for your budget.

How a Mortgage Calculator Assists You

A mortgage calculator is an invaluable tool for setting your housing budget and estimating your monthly house payment, which is likely to be your largest recurring expense. By inputting different scenarios into Bankrate’s Mortgage Calculator, you can:

  • Determine the appropriate loan length for your budget.
  • Evaluate if an adjustable-rate mortgage (ARM) is a viable option.
  • Assess if your spending exceeds your financial capacity.
  • Decide on the size of your down payment.

Determining Housing Affordability

A common guideline for housing affordability is the 28/36 percent rule. This suggests that no more than 28% of your gross income should go towards housing costs and no more than 36% towards total debt. For example, if your gross monthly income is $5,000, your monthly mortgage payment should not exceed $1,400.

Reducing Your Monthly Mortgage Payment

If the estimated payment is higher than your budget allows, consider these options:

  • Opt for a longer loan term.
  • Purchase a less expensive home.
  • Avoid PMI with a 20% down payment or more.
  • Shop for lower interest rates.
  • Increase your down payment.

Next Steps

After using the mortgage calculator:

  1. Get preapproved by a lender.
  2. Apply for a mortgage to understand how much you can borrow and the required down payment.

Mortgage Calculator: Other Uses

Besides estimating new mortgage payments, the calculator can also be used for:

  • Planning early mortgage payoff.
  • Deciding if an ARM is suitable.
  • Determining when to eliminate private mortgage insurance.

Understanding Terms

To effectively use an online mortgage calculator, you’ll need:

  • Home price.
  • Down payment amount.
  • Loan amount.
  • Loan term.
  • Interest rate.
  • Loan start date.

This tool not only predicts your monthly mortgage payment but also shows the total interest paid over the loan’s lifespan.

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