Mortgage Calculator

A monthly mortgage payment is usually four things combined into one bill: Principal, Interest, Taxes, and Insurance — remembered as PITI. This calculator handles the principal and interest components (the loan amortization). Property taxes and homeowners insurance are handled by your servicer through an escrow account attached to the loan; those amounts vary by property location, home value, and coverage.

For a $400,000 home with a 20% down payment and a 7% 30-year mortgage, monthly principal and interest is about $2,129. Add typical property taxes ($400-800/month depending on state), homeowners insurance ($100-200/month), and if the down payment is under 20%, private mortgage insurance ($150-300/month for conventional loans). Full PITI often runs $700-1,300 more per month than P&I alone.

The most consequential mortgage decision is loan term. Two options dominate the US market: 30-year fixed and 15-year fixed. Each has a distinct financial profile.

Fixed-rate mortgages lock in the interest rate for the entire loan life. Adjustable-rate mortgages (ARMs) fix the rate for an initial period (typically 5, 7, or 10 years — labelled 5/1 ARM, 7/1 ARM, etc.), then adjust annually based on an index plus a lender margin.

ARMs typically start about 0.5-1 point below the equivalent 30-year fixed. That initial-rate advantage is real; the risk is what happens after the fixed period ends. In a rising-rate environment, an ARM that starts at 6.5% might reset to 8% or higher.

The rational use case for an ARM: you are confident you will sell or refinance before the reset period, or your career trajectory means you can absorb a payment increase. For long-term home ownership by families whose income tracks inflation but not much more, 30-year fixed remains the default answer because it removes rate risk entirely.

Discount points are prepaid interest — one point equals 1% of the loan amount and typically buys down the rate by 0.125-0.375%. On a $400,000 loan, 1 point costs $4,000 and might drop the rate from 7% to 6.75%.

The break-even calculation: monthly savings from the rate reduction divided by the up-front point cost. In the example, dropping from 7% to 6.75% on a $400K 30-year saves about $67/month. Break-even is $4,000 / $67 = 60 months, or 5 years.

If you plan to keep the loan longer than the break-even period, points make sense. If you plan to sell or refinance sooner, no-point pricing is better. First-time homebuyers who statistically move within 5-7 years often over-pay for points. Long-term forever-home buyers with 15+ year horizons systematically underuse them.

The "you must put 20% down to avoid PMI" advice is technically accurate but often bad guidance. Private Mortgage Insurance costs $50-150/month per $100K of loan and is charged when the down payment is less than 20%. On a $400,000 conventional loan with 10% down, PMI runs about $150/month.

PMI automatically cancels when your loan-to-value ratio reaches 78% based on the original amortization schedule, or you can request cancellation when it reaches 80% (typically 5-8 years into a 30-year loan). Some FHA loans require Mortgage Insurance Premium (MIP) for the loan's life regardless of equity — an important distinction that makes FHA less attractive for medium-term borrowers.

The math often favours buying sooner with PMI over waiting years to save 20%. If home prices are rising at 4% annually, waiting 3 years to save the additional 10% down means paying 12% more for the home (compounded), which usually exceeds the PMI you would have paid over those 3 years.

Mortgage lenders traditionally underwrite based on two debt-to-income (DTI) ratios: the front-end ratio (housing payment / gross monthly income) should not exceed 28%, and the back-end ratio (housing payment + all other debt / gross income) should not exceed 36%.

On a $100,000 gross annual income ($8,333/month), 28% front-end DTI means max housing payment of $2,333. That funds a mortgage around $290,000-320,000 depending on rates and property taxes. 36% back-end DTI means all monthly debt (mortgage + car + credit cards + student loans) cannot exceed $3,000.

Some lenders will underwrite up to 43% back-end DTI (the qualified-mortgage ceiling under Dodd-Frank). Just because a lender WILL approve does not mean you SHOULD borrow that much. The 28/36 rule is a healthy ceiling; the 43% rule is a lending ceiling.

Refinancing (see the Refinance Calculator) makes economic sense when the new rate is at least 0.75-1 percentage point below your current rate, you plan to keep the loan long enough to recover closing costs, and your credit and equity position both improved since the original loan.

Refinance closing costs typically run 2-5% of loan amount. On a $400K mortgage that is $8,000-20,000. Dividing that by monthly payment savings gives break-even months. At $200/month savings, an $8,000 refi breaks even at 40 months (~3.3 years). At $500/month savings, at 16 months.

Rate-and-term refinance (change rate/term only) is different from cash-out refinance (increase loan amount to extract equity). Cash-out refis carry slightly higher rates and are treated differently for tax purposes; use them only for productive uses (home improvements, high-interest debt consolidation), not consumption.