Mortgage payment calculator with taxes insurance and pmi

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 mortgage payment calculators break down your monthly mortgage expenses.

Home Price

Your home price isn’t the listing price you first saw on a real estate website, though it may end up being the same thing – in all likelihood, 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.

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 (PMI) on a conventional loan, lenders expect a down payment of at least 20%. If you pay less than 20%, lenders will expect you to pay PMI as part of your mortgage payment each month. 

So, if you’re purchasing a $300,000 home, that means you’ll want to make 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 making 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 likely to default on your loan.

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 monthly payment for 30 years. Once the loan term is up, your mortgage should be paid off.

Mortgage loan terms can vary, but most borrowers choose either a fixed-rate 15-year or 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 want to choose a 30-year loan term. If you’re looking to pay less money in interest overall and can manage a higher monthly payment, 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.

Use the mortgage calculator to see what your payments will be like with both options. Then, consider how much you’ll pay in interest over the life of the loan.

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.

How to calculate your mortgage payments

The calculus behind mortgage payments is complicated, but Bankrate's Mortgage Calculator makes this math problem quick and easy.

First, next to the space labeled "Home price," enter the price (if you're buying) or the current value of your home (if you're refinancing).

In the "Down payment" section, type in the amount of your down payment (if you're buying) or the amount of equity you have (if you're refinancing). A down payment is the cash you pay upfront for a home, and home equity is the value of the home, minus what you owe. You can enter either a dollar amount or the percentage of the purchase price you're putting down.

Next, you'll see “Length of loan.” Choose the term — usually 30 years, but maybe 20, 15 or 10 — and our calculator adjusts the repayment schedule.

Finally, in the "Interest rate" box, enter the rate you expect to pay. Our calculator defaults to the current average rate, but you can adjust the percentage. Your rate will vary depending on whether you’re buying or refinancing.

As you enter these figures, a new amount for principal and interest will appear to the right. Bankrate's calculator also estimates property taxes, homeowners insurance and homeowners association fees. You can edit these amounts or even ignore them as you're shopping for a loan — those costs might be rolled into your escrow payment, but they don't affect your principal and interest as you explore your options.

Typical costs included in a mortgage payment 

The major part of your mortgage payment is the principal and the interest. The principal is the amount you borrowed, while the interest is the sum you pay the lender for borrowing it. Your lender also might collect an extra amount every month to put into escrow, money that the lender (or servicer) then typically pays directly to the local property tax collector and to your insurance carrier.

• Principal: This is the amount you borrowed from the lender.
• Interest: This is what the lender charges you to lend you the money. Interest rates are expressed as an annual percentage.
• Property taxes: Local authorities assess an annual tax on your property. If you have an escrow account, you pay about one-twelfth of your annual tax bill with each monthly mortgage payment.
• Homeowners insurance: Your insurance policy can cover damage and financial losses from fire, storms, theft, a tree falling on your home and other hazards. If you live in a flood zone, you'll have an additional policy, and if you're in Hurricane Alley or earthquake country, you might have a third insurance policy. As with property taxes, you pay one-twelfth of your annual insurance premium each month, and your lender or servicer pays the premium when it's due.
• Mortgage insurance: If your down payment is less than 20 percent of the home's purchase price, you'll probably be on the hook for mortgage insurance, which also is added to your monthly payment.

Mortgage payment formula

Want to figure out how much your monthly mortgage payment will be? For the mathematically inclined, here's a formula to help you calculate mortgage payments manually:

Equation for mortgage payments

This formula can help you crunch the numbers to see how much house you can afford. Using our Mortgage Calculator can take the work out of it for you and help you decide whether you're putting enough money down or if you can or should adjust your loan term. It's always a good idea to rate-shop with several lenders to ensure you're getting the best deal available.

How a mortgage calculator can help

As you set your housing budget, determining your monthly house payment is crucial — it will probably be your largest recurring expense. As you shop for a purchase loan or a refinance, Bankrate's Mortgage Calculator allows you to estimate your mortgage payment. To study various scenarios, just change the details you enter into the calculator. The calculator can help you decide:

• The loan length that's right for you. If your budget is fixed, a 30-year fixed-rate mortgage is probably the right call. These loans come with lower monthly payments, although you'll pay more interest during the course of the loan. If you have some room in your budget, a 15-year fixed-rate mortgage reduces the total interest you'll pay, but your monthly payment will be higher.
• If an ARM is a good option. As rates rise, it might be tempting to choose an adjustable-rate mortgage (ARM). Initial rates for ARMs are typically lower than those for their conventional counterparts. A 5/6 ARM — which carries a fixed rate for five years, then adjusts every six months — might be the right choice if you plan to stay in your home for just a few years. However, pay close attention to how much your monthly mortgage payment can change when the introductory rate expires.
• If you're spending more than you can afford. The Mortgage Calculator provides an overview of how much you can expect to pay each month, including taxes and insurance.
• How much to put down. While 20 percent is thought of as the standard down payment, it's not required. Many borrowers put down as little as 3 percent.

Deciding how much house you can afford

If you're not sure how much of your income should go toward housing, follow the tried-and-true 28/36 percent rule. Many financial advisors believe that you should not spend more than 28 percent of your gross income on housing costs, such as rent or a mortgage payment, and that you should not spend more than 36 percent of your gross income on overall debt, including mortgage payments, credit cards, student loans, medical bills and the like. Here's an example of what this looks like:

Joe makes $60,000 a year. That's a gross monthly income of $5,000 a month. $5,000 x 0.28 = $1,400 total monthly mortgage payment (PITI)

Joe's total monthly mortgage payments — including principal, interest, taxes and insurance — shouldn't exceed $1,400 per month. That's a maximum loan amount of roughly $253,379. While you can qualify for a mortgage with a debt-to-income (DTI) ratio of up to 50 percent for some loans, spending such a large percentage of your income on debt might leave you without enough wiggle room in your budget for other living expenses, retirement, emergency savings and discretionary spending. Lenders don't take those budget items into account when they preapprove you for a loan, so you need to factor those expenses into your housing affordability picture for yourself. Once you know what you can afford, you can take financially sound next steps.The last thing you want to do is jump into a 30-year home loan that's too expensive for your budget, even if a lender is willing to loan you the money. Bankrate's How Much House Can I afford Calculator will help you run through the numbers.

How to lower your monthly mortgage payment

If the monthly payment you're seeing in our calculator looks a bit out of reach, you can try some tactics to reduce the hit. Play with a few of these variables:

• Choose a longer loan. With a longer term, your payment will be lower (but you'll pay more interest over the life of the loan).
• Spend less on the home. Borrowing less translates to a smaller monthly mortgage payment.
• Avoid PMI. A down payment of 20 percent or more (or in the case of a refi, equity of 20 percent or more) gets you off the hook for private mortgage insurance (PMI).
• Shop for a lower interest rate. Be aware, though, that some super-low rates require you to pay points, an upfront cost.
• Make a bigger down payment. This is another way to reduce the size of the loan.

Next steps

A mortgage calculator is a springboard to helping you estimate your monthly mortgage payment and understand what it includes. Your next step after exploring the numbers:

• Get preapproved by a mortgage lender. If you're shopping for a home, this is a must.
• Apply for a mortgage. After a lender has vetted your employment, income, credit and finances, you'll have a better idea how much you can borrow. You'll also have a clearer idea of how much money you'll need to bring to the closing table.

Mortgage calculator: Alternative uses

Most people use a mortgage calculator to estimate the payment on a new mortgage, but it can be used for other purposes, too.

Here are some other uses:

1. Planning to pay off your mortgage early.

   Use the "Extra payments" functionality of Bankrate's mortgage calculator to find out how you can shorten your term and save more over the long-run by paying extra money toward your loan's principal. You can make these extra payments monthly, annually or even just one time.

   To calculate the savings, click the "Amortization / Payment Schedule" link and enter a hypothetical amount into one of the payment categories (monthly, yearly or one-time), then click "Apply Extra Payments" to see how much interest you'll end up paying and your new payoff date.

2. Decide if an ARM is worth the risk.

   The lower initial interest rate of an adjustable-rate mortgage, or ARM, can be tempting. While an ARM may be appropriate for some borrowers, others may find that the lower initial interest rate won't cut their monthly payments as much as they think.

   To get an idea of how much you'll really save initially, try entering the ARM interest rate into the mortgage calculator, leaving the term as 30 years. Then, compare those payments to the payments you get when you enter the rate for a conventional 30-year fixed mortgage. Doing so may confirm your initial hopes about the benefits of an ARM -- or give you a reality check about whether the potential plusses of an ARM really outweigh the risks.

3. Find out when to get rid of private mortgage insurance.

   You can use the mortgage calculator to determine when you'll have 20 percent equity in your home. That's the magic number for requesting that a lender waive its private mortgage insurance requirement. If you put less than 20 percent down when you purchased the home, you'll need to pay an extra fee every month on top of your regular mortgage payment to offset the lender's risk. Once you have 20 percent equity, that fee goes away, which means more money in your pocket.

   Simply enter in the original amount of your mortgage and the date you closed, and click "Show Amortization Schedule." Then, multiply your original mortgage amount by 0.8 and match the result to the closest number on the far-right column of the amortization table to find out when you'll reach 20 percent equity.

Terms explained

Using an online mortgage calculator can help you quickly and accurately predict your monthly mortgage payment with just a few pieces of information. It can also show you the total amount of interest you"ll pay over the life of your mortgage. To use this calculator, you"ll need the following information:

Home price - This is the dollar amount you expect to pay for a home.

Down payment - The down payment is money you give to the home's seller. At least 20 percent down typically lets you avoid mortgage insurance.

Loan amount - If you're getting a mortgage to buy a new home, you can find this number by subtracting your down payment from the home's price. If you're refinancing, this number will be the outstanding balance on your mortgage.

Loan term (years) - This is the length of the mortgage you're considering. For example, if you're buying a home, you might choose a mortgage loan that lasts 30 years, which is the most common, as it allows for lower monthly payments by stretching the repayment period out over three decades. On the other hand, a homeowner who is refinancing may opt for a loan with a shorter repayment period, like 15 years. This is another common mortgage term that allows the borrower to save money by paying less total interest. However, monthly payments are higher on 15-year mortgages than 30-year ones, so it can be more of a stretch for the household budget, especially for first-time homebuyers.

Interest rate - Estimate the interest rate on a new mortgage by checking Bankrate's mortgage rate tables for your area. Once you have a projected rate (your real-life rate may be different depending on your overall financial and credit picture), you can plug it into the calculator.

Loan start date - Select the month, day and year when your mortgage payments will start.

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