Free Mortgage Calculator

How does a mortgage calculator help me?

When deciding how much house you can afford, one of the most important pieces to determine is whether a home will fit into your monthly budget. A mortgage calculator helps you understand the monthly cost of a home. And ours will allow you to enter different down payments and interest rates to help determine what is affordable for you.

How to use this free mortgage calculator?

Play around with different home prices, locations, down payments, interest rates, and mortgage lengths to see how they impact your monthly mortgage payments.

Increasing your down payment and decreasing your interest rate and mortgage term length will make your monthly payment go down. Taxes, insurance, and HOA fees will vary by location. If you enter a down payment amount that’s less than 20% of the home price, private mortgage insurance (PMI) costs will be added to your monthly mortgage payment. As the costs of utilities can vary from county to county, we’ve included a utilities estimate that you can break down by service. If you’re thinking about buying a condo or into a community with a Homeowners Association (HOA), you can add HOA fees.

The only amounts we haven’t included are the money you’ll need to save for annual home maintenance/repairs or the costs of home improvements. To see how much home you can afford including these costs, take a look at the Better home affordability calculator.

Fun fact: Property tax rates are extremely localized, so two homes of roughly the same size and quality on either side of a municipal border could have very different tax rates. Buying in an area with a lower property tax rate may make it easier for you to afford a higher-priced home.

How to calculate mortgage payments

Your monthly mortgage payment includes loan principal and interest, property taxes, homeowners insurance, and mortgage insurance (PMI), if applicable. While not typically included in your mortgage payment, homeowners also pay monthly utilities and sometimes pay homeowners association (HOA) fees, so it’s a good idea to factor these into your monthly budget. This mortgage calculator factors in all these typical monthly costs so you can really crunch the numbers.

Play around with different home prices, locations, down payments, interest rates, and mortgage lengths to see how they impact your monthly mortgage payments.

Increasing your down payment and decreasing your interest rate and mortgage term length will make your monthly payment go down. Taxes, insurance, and HOA fees will vary by location.

If you enter a down payment amount that’s less than 20% of the home price, private mortgage insurance (PMI) costs will be added to your monthly mortgage payment. As the costs of utilities can vary from county to county, we’ve included a utilities estimate that you can break down by service. If you’re thinking about buying a condo or into a community with a Homeowners Association (HOA), you can add HOA fees.

The only amounts we haven’t included are the money you’ll need to save for annual home maintenance/repairs or the costs of home improvements. To see how much home you can afford including these costs, take a look at the Better home affordability calculator.

Fun fact: Property tax rates are extremely localized, so two homes of roughly the same size and quality on either side of a municipal border could have very different tax rates. Buying in an area with a lower property tax rate may make it easier for you to afford a higher-priced home.

Formula for calculating monthly mortgage payments

The easiest way to calculate your mortgage payment is to use a calculator, but for the curious or mathematically inclined, here’s the formula for calculating principal and interest yourself:

Where:

• M is monthly mortgage payments

• P is the principal loan amount (the amount you borrow)

• r is the monthly interest rate
  (annual interest rate divided by 12 and expressed as a decimal)
  For example:
  if the annual interest rate is 5%,
  the monthly rate would be 0.05/12 = .00417, or .417%

• n is the total number of payments in months
  For example:
  for a 30-year loan, n = 30×12 = 360 months

Here’s a simple example:

Suppose you borrow $200,000 with an annual interest rate of 5% for a 30-year term:

M, or monthly payment, equals $1,074

This formula assumes a fixed-rate mortgage, where the interest rate remains constant throughout the loan term. And remember, you’ll still need to add on taxes, insurance, utilities, and HOA fees if applicable.

The above scenario is for illustrative purposes only. Your actual monthly payment will differ.

How much is mortgage insurance

The cost of mortgage insurance varies based on several factors – from the loan amount, to your credit score, to the size of your down payment. Generally, the higher the loan amount, the higher the insurance premium will be. Lenders assess the risk associated with larger loan amounts and adjust the insurance cost accordingly.

It's important to note that the loan amount is not the same as the home's purchase price. The loan amount refers to the actual amount borrowed from the lender to finance the purchase, which might include additional fees and closing costs.

Your credit score is another significant factor in determining your mortgage insurance cost. Borrowers with higher credit scores are generally considered lower risk and may qualify for lower insurance premiums.

On the other hand, if your credit score is lower, you might be subject to higher insurance rates. Lenders use credit scores as an indicator of a borrower's likelihood to default on the loan, and higher insurance costs help offset the perceived risk. Therefore, maintaining a good credit score or taking steps to improve it before applying for a mortgage can not only increase your chances of loan approval but also reduce your mortgage insurance costs.

The size of your down payment can significantly impact your mortgage insurance expenses. In general, a larger down payment results in a lower insurance premium, as it reduces the risk for the lender. Higher down payments can demonstrate financial stability and a lower likelihood of default.

Conversely, smaller down payments are associated with higher insurance costs. This is because lenders typically perceive borrowers with lower down payments as higher risk, and the insurance premium is adjusted accordingly. By making a larger down payment, you can potentially reduce your mortgage insurance expenses.

If you’re curious on how to avoid PMI altogether, the most surefire way is to put down 20% or more as your down payment.

How to get rid of PMI?

While PMI provides the ability to afford a home sooner, it can create an additional financial burden for some homeowners.

That said, you have the opportunity to request the cancellation of PMI once you reach a specific loan-to-value ratio. Typically, this ratio is achieved when the outstanding mortgage balance reaches 80% of the original appraised value of the home.

Ensure you meet all the necessary requirements, including reaching the loan-to-value ratio and making all your mortgage payments on time. Then, submit a formal request to your lender and provide any supporting documentation they may require.

Each lender may have different policies and procedures for removing PMI. It is essential to familiarize yourself with your lender's specific requirements and timelines. Understanding their policies will help you navigate the process effectively and increase your chances of successfully eliminating PMI.

If you’d like to eliminate PMI sooner, you have a few options. One way to eliminate PMI is to refinance your mortgage. If the value of your home has increased since you originally purchased it, you may qualify for a new loan with a lower loan-to-value ratio. By refinancing, you can potentially remove the requirement for PMI, but make sure this option makes sense when comparing your original interest rates to current ones as in some cases refinancing may cause your finance charges to be higher over the life of the loan.

Another strategy to eliminate PMI is to make extra payments towards your mortgage principal. By paying down your mortgage faster, you can reach the 80% loan-to-value ratio quicker and request the cancellation of PMI when you qualify.

As mentioned earlier, PMI is required until you reach a certain loan-to-value ratio. If your home's value appreciates significantly, you may reach this ratio sooner than anticipated. Regularly monitoring the value of your home can help you determine when you might be eligible to request PMI cancellation.

As for removing PMI from an FHA loan, the process is a little different. FHA mortgage insurance removal hinges on certain factors like your loan origination date and your down payment size.

If you got your loan before 2000, you’re stuck with the FHA mortgage insurance premiums for the life of the loan. Loans originated after 2000 might be eligible for FHA mortgage insurance removal in certain cases.

If you or your lender determine you’re ineligible to eliminate PMI, you can consider refinancing your FHA loan to a conventional loan.

What does PMI cover?

One of the primary components of PMI is providing protection to the lender. In the event of default, the lender can file a claim with the insurance company and recover a portion of the outstanding loan balance. This protects the lender from significant financial losses.

It's important to note that PMI has coverage limitations. The insurance coverage may not extend to the full loan amount, and the policy may have certain exclusions or limitations. Borrowers should review the terms and conditions of their specific PMI policy to understand its scope.

For example, some PMI policies may only cover a percentage of the outstanding loan balance, leaving the borrower responsible for the remaining portion in case of default. Additionally, certain events or circumstances may be excluded from coverage, such as acts of nature or intentional damage to the property.

Understanding the coverage limitations of PMI is crucial for borrowers to make informed decisions about their mortgage financing. It's recommended that borrowers consult with their lender or insurance provider to fully comprehend the terms and conditions of their PMI policy.

How does PMI work?

PMI rates are determined based on various factors, including the loan-to-value ratio (LTV). The LTV compares the loan amount to the appraised value of the property. Higher LTV ratios generally result in higher PMI rates. The specific calculation method may vary between lenders, so it's essential for borrowers to consult their lender or review their loan documents for the exact calculation method.

PMI payments are typically included in the borrower's monthly mortgage payment. They are held in an escrow account and paid directly to the insurance company by the lender. Borrowers should ensure they budget for these PMI payments when calculating the overall cost of homeownership.

Is PMI tax deductible

Starting in 2007, the Mortgage Insurance Premiums tax deduction was introduced as part of the Tax Relief and Health Care Act. This deduction allowed eligible borrowers to deduct their PMI premiums as part of their itemized deductions on their federal tax return. However, it's important to note that this deduction is not available to everyone.

PMI can be tax deductible, but there are specific criteria that need to be met in order to claim this deduction. In general, PMI premiums may be deductible if you meet certain eligibility requirements.

Firstly, the loan must have been taken out after January 1, 2007. This means that if you have an older mortgage, you may not be eligible for the PMI tax deduction. Secondly, the deduction is subject to income limits. If your adjusted gross income (AGI) exceeds a certain threshold, the deduction may be reduced or completely phased out. The specific income limits vary depending on your filing status.

Lastly, the deduction is only available if you choose to itemize your deductions on your federal tax return. This means that you will need to forgo the standard deduction and instead list out all your eligible expenses, including PMI premiums, in order to claim the deduction.

It's important to note that the PMI tax deduction is not a permanent provision and has been extended on a year-to-year basis. Therefore, it's crucial to stay updated on any changes to the tax laws and consult with a tax professional to determine your eligibility for this deduction.

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