Mortgage Calculator

How does this mortgage calculator work?

Our mortgage calculator uses the standard formula for calculating fixed-rate mortgage payments. It takes into account:

• Home price - The purchase price of the home
• Down payment - The initial upfront payment you make
• Loan term - The length of the mortgage (typically 15 or 30 years)
• Interest rate - The annual interest rate on your loan
• Property taxes - Annual taxes based on your home's value
• Home insurance - Annual insurance premium for your property
• PMI - Private Mortgage Insurance (if your down payment is less than 20%)
• HOA fees - Monthly homeowners association fees, if applicable

The calculator provides a detailed breakdown of your monthly payment, shows how much you'll pay in interest over the life of the loan, and generates an amortization schedule that illustrates how each payment affects your loan balance.

When to refinance mortgage

Refinancing your mortgage can be a smart financial move in several situations:

1. Interest rates have dropped

If mortgage rates are significantly lower than when you originally took out your loan (typically 1-2% lower), refinancing could save you thousands over the life of your loan.

2. Your credit score has improved

If your credit score has increased substantially since you got your original mortgage, you may qualify for a better interest rate.

3. You want to change your loan term

Refinancing from a 30-year to a 15-year mortgage can help you pay off your home faster and save on interest, though your monthly payments will be higher.

4. You want to tap into home equity

A cash-out refinance allows you to borrow against your home's equity for major expenses like home improvements, education, or debt consolidation.

5. You want to eliminate PMI

If your home has appreciated in value and you've built sufficient equity, refinancing can help you remove private mortgage insurance payments.

Before refinancing, consider the closing costs and how long you plan to stay in the home. Use our refinance calculator above to determine if refinancing makes financial sense for your situation.

What is reverse mortgage

A reverse mortgage is a special type of home loan for homeowners aged 62 or older that allows them to convert part of their home equity into cash. Unlike a traditional mortgage where you make monthly payments to the lender, with a reverse mortgage, the lender makes payments to you.

Key features of reverse mortgages:

• You must be at least 62 years old and own your home outright or have a low mortgage balance
• You can receive funds as a lump sum, monthly payments, or line of credit
• You retain title to your home and are responsible for property taxes, insurance, and maintenance
• The loan becomes due when the last surviving borrower dies, sells the home, or moves out permanently
• Most reverse mortgages are Home Equity Conversion Mortgages (HECMs) insured by the Federal Housing Administration

Benefits of reverse mortgages:

• Provides supplemental retirement income
• No monthly mortgage payments required
• Funds are generally tax-free
• You can stay in your home while accessing your equity

Risks and considerations:

• Accruing interest and fees reduce your home equity over time
• Heirs may inherit less equity or need to sell the home to repay the loan
• You must continue to pay property taxes and insurance or risk foreclosure
• Upfront costs can be high

Reverse mortgages can be complex financial products. It's important to consult with a HUD-approved counselor before deciding if a reverse mortgage is right for you.

Should I prepay mortgage

Prepaying your mortgage (making extra payments toward your principal) can be a smart financial strategy, but it's not the right choice for everyone. Consider these factors:

Reasons to prepay your mortgage:

• Interest savings - Even small extra payments can significantly reduce the total interest you pay over the life of the loan
• Faster equity building - You'll build equity in your home more quickly
• Debt-free sooner - You can own your home outright years earlier
• Peace of mind - Being mortgage-free provides financial security
• Guaranteed return - The "return" from prepaying equals your mortgage interest rate, which is guaranteed

Reasons to reconsider prepaying:

• Higher-interest debt - If you have other debt with higher interest rates (like credit cards), pay those off first
• Retirement savings - If you're not maxing out retirement accounts, that might offer better long-term returns
• Emergency fund - Ensure you have 3-6 months of living expenses saved before prepaying your mortgage
• Investment opportunities - If you can earn a higher after-tax return elsewhere, investing might be better
• Liquidity needs - Mortgage prepayments tie up cash in your home, which can be hard to access

Strategies for prepaying:

• Make one extra payment per year
• Round up your monthly payment (e.g., pay $1,500 instead of $1,432)
• Apply windfalls (tax refunds, bonuses, gifts) to your principal
• Make bi-weekly payments instead of monthly (results in 13 full payments per year)

Use our extra payments calculator above to see how prepaying could affect your mortgage term and total interest paid.

How much should I spend on mortgage

Determining how much you should spend on a mortgage payment depends on your financial situation, goals, and risk tolerance. Here are some common guidelines:

The 28/36 Rule

This is a standard guideline used by many lenders:

• 28% Front-end ratio - Your monthly mortgage payment (including principal, interest, taxes, and insurance) should not exceed 28% of your gross monthly income.
• 36% Back-end ratio - Your total monthly debt payments (including mortgage, car loans, student loans, credit cards, etc.) should not exceed 36% of your gross monthly income.

Example calculation:

If your gross annual income is $100,000 ($8,333 per month):

• Maximum mortgage payment: $8,333 × 0.28 = $2,333
• Maximum total debt payments: $8,333 × 0.36 = $3,000

Other considerations:

• Down payment - A larger down payment reduces your monthly mortgage payment
• Interest rate - Higher rates increase your monthly payment
• Loan term - Shorter terms mean higher monthly payments but less interest overall
• Other housing costs - Don't forget to budget for maintenance, repairs, and utilities
• Life goals - Consider how homeownership costs fit with other financial goals like retirement savings, education funds, and vacations

Alternative approaches:

• 25% post-tax rule - Limit your mortgage payment to 25% of your take-home pay
• 15-year mortgage rule - If you can't afford the payments on a 15-year mortgage for the home you want, consider a less expensive home
• Emergency fund priority - Ensure you have adequate savings before taking on a large mortgage

Remember that these are guidelines, not strict rules. Your personal circumstances, risk tolerance, and financial goals should ultimately determine how much you spend on housing.