The material presented here is for educational purposes only, and is not intended to be used as financial, investment, or legal advice.
How to Calculate Your Mortgage Payment with a Mortgage Calculator
If you’re a soon-to-be homeowner, you probably want to know how to calculate a monthly payment. Use our mortgage calculator to see how much you’ll owe each month and learn about additional costs to factor in as well.
While shopping for a new home, there are a lot of considerations, from location and house non-negotiables to affordability and rates. Mortgage rates dictate much of the homebuying process, and Desert Financial makes it easy to calculate your potential monthly payment with its Home Purchase Monthly Payment Calculator. To get your estimated monthly payment, you simply enter your loan amount and select the loan term and interest rate. For example, if you took out a $300,000 loan with a 15-year fixed rate of 2.375%, then your estimated monthly payment will be $1,986.
Why Should I Use a Mortgage Calculator?
By estimating your monthly mortgage payment based on your loan amount, term and interest rate, you can make informed decisions while shopping for a new home. Learning which houses and areas fit within your budget can help guide your home search and narrow down your options, so you don’t get in over your head financially.
Here’s what you’ll need to determine what you’ll pay monthly. (Keep in mind, this monthly lump-sum estimate excludes other expenses like private mortgage insurance (PMI), homeowner’s insurance and property taxes, which we’ll talk about more).
- Loan Amount: The loan amount is also known as the mortgage principal. This amount is what you borrow from a lender — after making a down payment — in order to buy the house. Then each month you’re paying down the principal.
- Loan Term: The timeframe of how long you have to pay off the loan and length of the mortgage is called the loan term. With a shorter term, monthly payments are higher and interest is lower. With a longer term, monthly payments are lower and interest is higher. If you need a longer term because of your financial situation, a good rule of thumb to follow is to try to pay more toward the principal when you have extra cash to help lower how much interest you pay in the long-term.
- Interest Rate: The base mortgage interest rate is like a fee charged by the financial institution for borrowing funds to finance a house. It’s a percentage of the principal loan balance paid to the lender in addition to the monthly payment. The market and economy determine interest rates, and the rate homeowners can get is also predicated on factors such as credit score, repayment history, income/employment, debt, property type and occupancy, and the down payment. The higher the risk factors associated with the loan, the higher the interest rate may be.
Side Note: The base interest rate is different from the APR or Annual Percentage Rate. The APR is generally higher than the interest rate. The Consumer Financial Protection Bureau refers to an APR as a “broader measure of the cost of borrowing money.” It “reflects the interest rate, any points, mortgage broker fees, and other charges that you pay to get the loan.”1
What Else Should I Consider?
It’s important to account for these additional monthly expenses:
- Private Mortgage Insurance: Mortgage insurance is paid by borrowers who make a down payment of less than 20% of the home’s price. The rate is based on various factors including the loan type, size of the down payment, credit score and percentage of the loan. Mortgage insurance is paid for in addition to the loan principal while protecting the lender in case you fall behind on your payments. If you default, you may have to foreclose on your house as your credit score drops.
- Homeowners Insurance: Another type of insurance and expense to plan for is homeowners insurance, which provides financial coverage in the event that something destructive happens to your home like a fire. It also covers your liability for any damage to someone else that you (or your family members) are legally responsible for.
- Property Taxes: Property tax also adds an additional charge to your monthly balance. Paid to the lender, the taxes are usually put into an escrow or impound account. The lender then pays the taxes to the government at the end of the year. City tax rates, along with the home’s value, determine how much you pay in taxes. If you fail to pay your property taxes, you could get a tax lien (or legal claim) against the property.
You now have an overall snapshot of all the costs that go into a monthly mortgage payment. (You’ll probably want to account for any Homeowners Association (HOA) fees as well.) Our mortgage calculator will estimate what you owe each month. Then a mortgage loan officer can help you determine what you’ll owe in mortgage and homeowner insurance and property taxes. By learning about these costs (along with any other upfront costs), you can financially prepare for your house purchase and future.
Mortgage loans are offered by Define Mortgage Solutions, LLC, NMLS ID #1761612, a subsidiary of Desert Financial Credit Union. BK#0949053