How to calculate your monthly mortgage payment

When you take out a mortgage to buy a home, the most important consideration is making sure you can keep up with your monthly payments. Before you enter into such a long-term financial commitment, you’ll need to understand what you’ll owe on your mortgage each month. You can calculate your monthly payment manually or by using our mortgage calculator. This can help you figure out what your mortgage payment will be so you can budget accordingly.

Why should you use a mortgage calculator?

The easiest way to figure out what your monthly payment would be is to use a mortgage calculator. While your lender may qualify you for a particular loan amount, that doesn’t necessarily mean the monthly payment amount will fit comfortably into your budget. It’s important to know your estimated monthly payment to determine how much house you can actually afford to buy.

Here’s some valuable information a mortgage calculator can unlock:

• Your ideal loan repayment term: A longer repayment term gives you more time to pay off your loan, which can give you lower monthly payments and help you afford a more expensive home. However, you’ll end up paying more in interest. A shorter repayment term can help you save on interest, but you’ll have to be able to afford higher monthly payments.
• The best home loan option for you: A mortgage calculator can help you figure out if you’d prefer a conventional loan or government-backed loan. It can also help you decide between a fixed-rate mortgage and an adjustable-rate mortgage.
• Whether the home is too expensive: A mortgage calculator can also help you determine how much house you can afford based on your down payment, interest rate, and loan term. A longer loan term and larger down payment can help you afford a more expensive home. If you have a limited down payment and a high interest rate, that can limit the properties that are within your budget.
• Determining the right down payment amount: The size of your down payment will have a big impact on the amount you owe each month. The larger the down payment, the more it can reduce your monthly payment. If you get a conventional loan with a down payment of under 20%, you’ll have to pay for private mortgage insurance (PMI), which will increase your monthly payment.
• Whether you should rent or own a home: A mortgage calculator can help you determine whether it’s more affordable for you to rent or buy your home. You might be surprised to find your monthly mortgage payment is quite comparable to your current rent payment - once the up-front costs are accounted for.

What will you find in a mortgage payment? 

Before you can calculate it, you’ll need to know the variables that go into your monthly mortgage payment. They include:

• Principal: The amount you’ve borrowed and have to pay back.
• Interest: What the lender is charging you to borrow that money.
• Loan term length: This is how long you have to pay the loan off. A longer repayment term means lower monthly payments, and a shorter term means higher monthly payments.
• Mortgage insurance: If you make a down payment of less than 20% on a conventional loan, you’ll have to pay PMI, which will increase your monthly payment. FHA loans have mandatory insurance premiums that may last for the life of the loan, depending on your down payment amount.
• Property taxes: Property taxes are paid to your local government to cover public services, infrastructure, and public safety. Your property taxes are typically rolled into your monthly payment and paid through an escrow account.
• Homeowners insurance: Mortgage lenders will require you to carry homeowners insurance to protect your home and their investment. If you have an escrow account, the annual premium is divided into monthly payments.
• Homeowners association (HOA) fees: Homeowners association (HOA) fees typically aren’t included in your monthly mortgage payment, but it’s important to budget for a monthly or annual fee as part of your overall housing costs.

How to use a mortgage calculator 

A mortgage calculator will ask you to input certain variables that impact what your monthly payment comes out to be. You’ll typically be asked to enter the following information:

• Home price: The overall purchase price for the home you’re buying.
• Down payment: This is the amount of the purchase price that you’re paying up front in cash and will impact your interest rate and the type of loan you can get. If your down payment on a conventional loan is less than 20%, you’ll need to purchase PMI.
• Interest rate: The interest rate on your mortgage will depend on current market rates, your down payment, credit score, loan term, and several other factors.
• Loan term length: The most common loan terms are 30 years and 15 years, though it’s also possible to customize your loan term.
• ZIP code: The location of your home will impact your estimated property taxes and can also affect the interest rate you’re offered.
• Property taxes: Your property taxes are paid to your local government - typically as part of your monthly mortgage payment.
• Homeowners insurance: This is coverage that protects against losses and damage to your property and is required by most lenders.

The mortgage calculator will combine these inputs to determine your estimated monthly payment.

How to calculate your mortgage payment manually

It’s also possible to calculate your monthly mortgage payment using a mathematical formula.

Mortgage payment formula 

While it’s certainly easier to use a calculator, having a basic understanding of the formula can give you an idea of how the different variables impact the outcome:

M = P × ((I × (1 + I)^T) ÷ ((1 + I)^T – 1))

This formula will help you calculate your mortgage payment based on the loan principal and interest before taxes, homeowners insurance, and HOA fees.

Here’s the breakdown for what each figure represents:

• M = Monthly payment: This is what you’re solving for.
• P = Principal amount:This is the loan balance you need to pay off.
• I = Interest rate:Your mortgage rate represents the interest that’s supposed to be paid monthly over the course of the year, so you’ll need to divide this by 12 to get the monthly interest rate.
• T = Term (in months): This is the total number of payments in your loan repayment term. For instance, if it’s a 30-year mortgage with monthly payments and you always pay the minimum amount, you’ll make 360 payments.

While the formula covers principal and interest, you can add taxes and insurance once you know their respective amounts. This will add up to your total monthly payment.

Additional types of mortgage calculators 

There are other types of mortgage calculators that can prove helpful depending on your situation:

1.  Home affordability calculator: A purchase calculator allows you to figure out how much cash you need for a down payment, or you can figure out how much you can afford based on your down payment and monthly income. You’ll need information such as the sales price and your down payment, credit score, income, debts, and ZIP code.

2.  Refinance calculator: A refinance calculator can help you determine whether a new mortgage loan makes sense for your situation. For example, it could be possible to lower your interest rate and monthly payment. You’ll need to know your home’s estimated value, your mortgage balance, and how long you plan to stay in your home, in addition to your income, debts, and credit score.

3.  Amortization calculator: A mortgage amortization calculator can show you how much interest and how many months of payments you can save by putting extra money toward your principal payment. You’ll need to input your loan amount, loan term length, interest rate, and the state you live in.

Other factors to consider before you secure a mortgage  

Beyond your mortgage payment, you’ll have to consider these additional costs of buying and owning a home:

• Closing costs: Closing costs are all the fees a lender charges to originate and finalize your loan. You can expect closing costs to range between 3% to 6% of the total loan amount.
• Loan type: Conventional loans have stricter eligibility criteria but can be cheaper than government-backed FHA loans if you qualify. If you have a lower credit score and small down payment, FHA loans may be more affordable.
• Maintenance and repairs: Once the home is in your name, you’ll have to factor in the costs of routine maintenance and emergency repairs. It’s advisable to set aside 1% to 4% of the value of your home for these costs.

The bottom line: A mortgage calculator can help you meet your homeownership goals

A key part of buying a home is knowing how much house you can afford. One way to help ensure you won’t be in over your head financially is to calculate your likely monthly mortgage payment using figures such as the sales price of the home, the amount of your down payment, and your interest rate.

If you’re ready to take this next step and begin the home buying journey, you can start your mortgage application online with Rocket Mortgage® today.

Refinancing may increase finance charges over the life of the loan.