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How To Use A Mortgage Calculator

Jamie Johnson6-minute read

October 26, 2021

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Are you considering homeownership for the first time, but not sure what kind of house you can afford? If so, a mortgage calculator is a helpful tool that you can use to determine what your monthly mortgage payments might be.

A mortgage calculator helps you estimate your monthly payments. And when you use the Rocket Mortgage® calculator, it’ll factor in frequently overlooked costs like property taxes and homeowners insurance.

Let’s learn more about how a mortgage calculator works, and the different factors it uses to determine your monthly mortgage payments.

Mortgage Calculator Breakdown

If you’re new to homeownership, you may not realize that the loan amount isn’t the only factor to consider when determining how to calculate a mortgage payment. Let’s look at how a mortgage calculator breaks down your monthly mortgage expenses.

Home Price

Your home price isn’t the listing price you first saw on a real estate website. The two numbers could end up being the same thing, but the likelihood is your home price will be either higher or lower than that number – it’s the final price you negotiate with the seller, and it’s the total amount you’ve agreed to pay for your home.

And when you’re searching for a mortgage, the home price is the most easily adjustable factor. For example, you can’t negotiate on the property taxes in your state, but you can always try to negotiate a lower price on your home.

Depending on how much you change the home price in the mortgage calculator, it could drastically change your estimated monthly mortgage payments. You can play around with those numbers a little to figure out what kind of monthly payment you can afford.

If you haven’t seriously started looking for houses, you can estimate the total home price. Browse several online real estate websites to see what the average home prices are in your area.

Down Payment

When you take out a conventional mortgage, most lenders will expect some kind of down payment. A down payment is a percentage of the entire loan amount you pay upfront before closing on the mortgage. To avoid paying private mortgage insurance, lenders expect a down payment of 20%.

So, if you’re purchasing a $300,000 home, that means you’ll pay a down payment of $60,000 before closing on the loan. Your down payment is subtracted from the total amount you borrow.

Of course, a 20% down payment is financially out of reach for many people. Fortunately, you can still get a conventional loan with a down payment as low as 3%.

That means using the above example, instead of making a $60,000 down payment, you’ll owe a $9,000 down payment. You can even get a mortgage with no down payment requirements when you qualify for a USDA or a VA loan. Rocket Mortgage® does not offer USDA loans.

However, there are advantages to putting down a larger down payment. Your mortgage lender may offer you a lower interest rate if you make a larger down payment. This is because a larger down payment means you’re less of a default risk to your lender.

You can calculate your down payment as either a percentage or a flat dollar amount using the Rocket Mortgage calculator. Test out both options to get a better idea of how it will affect your home costs in the long term and the type of down payment you’ll need to bring to closing.

Loan Term

The loan term is the length of your mortgage. For instance, if you take out a 30-year mortgage, that means you’ll make a fixed monthly payment every month for 30 years. Once the loan term is up, your mortgage is paid off.

Mortgage loan terms can vary, but most borrowers choose either a fixed-rate 15-year or fixed-rate 30-year mortgage. You can adjust your monthly mortgage payment by changing the loan terms.

For instance, if you want a lower monthly payment then you’ll probably want to choose a 30-year loan term. Whereas if you’re looking to pay less money in interest overall, you’ll want to choose a shorter loan term.

Spend some time thinking about how much money you can afford to spend on your monthly mortgage payments. From there, you can test out different loan terms to see which one is the most manageable for your current income.

Interest Rate

In exchange for giving you a loan, your lender will charge you interest on the total amount you borrow. Lenders calculate this interest as a percentage. For instance, a 4% interest rate means you’ll pay 4% on the total loan balance until the mortgage is paid off.

When you make your monthly mortgage payment, part of your payment will go toward interest and the rest will be applied to the principal. In the beginning, most of your monthly payments will go toward interest. But over time, more and more of your money will go toward principal.

The process of spreading your interest and principal payments over time is called amortization. When your loan is fully amortized, your loan balance reaches $0. This typically happens at the end of your term unless you make extra payments.

ZIP Code

The state you live in and your ZIP code determines how much you can expect to pay in homeowners insurance. Homeowners insurance rates vary depending on where you live as well as the age and condition of the home. For instance, you may pay a higher premium for a home that’s older or hasn’t been properly maintained.

Taxes

In addition, you’ll pay property taxes to your local government for the surrounding schools, libraries, emergency services, and other public services. Like homeowners insurance, property taxes can vary significantly depending on where you live. You’ll likely have the option of paying your property taxes from an escrow account.

Homeowners Insurance

Homeowners insurance protects your property in the event of a break-in or natural disaster. Homeowners insurance isn’t a legal requirement, but your lender will likely require you to maintain a certain amount of insurance.

This insurance protects both you and your lender from financial loss. It offers protection from the following scenarios:

  • Damage to your home from a natural disaster or accident
  • Damage to other structures on your property
  • Theft of personal property due to a break-in
  • If someone is injured on your property and sues you for liability damages

Annual homeowners insurance premiums vary by state. Some other factors that influence how much you’ll pay include: 

  • Your credit score
  • The age and current condition of your home
  • How much personal property you have to protect

What Does A Mortgage Payment Include?

Your home price isn’t the only cost that comes with buying a home. A typical monthly mortgage payment actually has four parts to it: principal, interest, taxes and insurance.

So, if you only consider the price of your home, you’re missing out on a big part of the financial picture. When you figure out your total monthly household income, be sure to consider any recurring debt and expenses.

From there, you can come up with a sample monthly budget and get an idea of how much money you can put toward your mortgage. This will give you a rough estimate of how much home you can afford so you can narrow your search.

A mortgage calculator can help you get a realistic idea of the type of home you can afford. The Rocket Mortgage calculator estimate shows principal and interest and has the option to include estimated property tax and homeowners insurance costs, based on your zip code.

Does The Mortgage Calculator Include PMI?

If you take out a conventional loan and pay a down payment that’s less than 20%, you’ll have to take out private mortgage insurance (PMI). PMI protects your lender in case you default on the loan.

And even though PMI offers you no protection as the homeowner, you’re responsible for covering the monthly costs. You can also request to have PMI removed from your loan once you reach at least 20% equity.

The Rocket Mortgage calculator does not include PMI as part of its monthly payment estimate. So, you’ll have to make sure you consider private mortgage insurance and closing costs when you calculate how much buying a home will cost you.

Get Accurate, Real-Time Rates With Rocket Mortgage®

Want a more exact idea of how much home you can afford? Getting preapproved for a loan with Rocket Mortgage® tells you exactly how much of a loan you can qualify for. During the preapproval process, the team of Home Loan Experts at Rocket Mortgage® will verify your income and assets to give you the most accurate idea of how much you can expect to pay each month, as well as your interest rate. Getting preapproved is quick and easy and you can even apply online from the comfort of your home. 

Ready to make the next step toward becoming a homeowner? Get started with Rocket Mortgage®.  

The Bottom Line: A Mortgage Calculator Can Help You Determine How Much House You Can Afford

If you’re new to buying a home, you may not realize all the costs that go into it. In addition to your loan balance and interest, you’ll have to consider property taxes, homeowners insurance, PMI and more.

Using the Rocket Mortgage calculator is a good way to get started. This calculator can help you determine the type of home you can afford. And you can tweak things like the home price or loan terms to find the best mortgage options for your budget.

If you’re ready to take the next steps toward becoming a homeowner, be sure to start the approval process with Rocket Mortgage. You can apply online or speak to a Home Loan Expert to get a better idea of how much you’ll pay after you close.

 

Find out what you can afford.

Use Rocket Mortgage® to see your maximum home price and get an online approval decision.

Calculate Monthly Payment

Most loans require at least 3% down, but a 0% down payment may be possible if you're eligible for a VA or USDA loan.

By clicking continue, you'll be taken to the full calculator, where you can view your results and adjust your numbers.

Jamie Johnson

Jamie Johnson is a Kansas City-based freelance writer who writes about a variety of personal finance topics, including loans, building credit, and paying down debt. She currently writes for clients like the U.S. Chamber of Commerce, Business Insider, and Bankrate.