As a prospective homebuyer, it’s important to decide how much of your monthly income you can comfortably spend on your new home. Once you’ve figured out your ideal budget, follow these tips to calculate your mortgage payment.
Gather the information you need to calculate your loan
The first step to determining your monthly payment is to gather the following information.
- Sale price of the home—the market value of the home you want to purchase
- Down payment—the portion of your total home cost that is paid up-front, a larger down payment can result in a smaller monthly payment
- Interest rate—the rate on the amount you’re financing. On a fixed-rate mortgage, the principal and interest will remain the same. On an adjustable-rate mortgage, the interest rate can change periodically.
- Property state—property tax and hazard insurance may vary by state, so the state where the property is located must be taken into consideration
- Term of the loan—enter the number of years to you have to repay or an interest-only option
Calculate your payment
Estimate how much your payment will be with our mortgage payment calculator. This conventional loan calculator shows you the total amount of principal, interest, property taxes and insurance that you will be expected to pay on your loan each month.
Review the results
Based on what you entered into the calculator, your total payment will be broken down into the following:
- Principal and interest—the amount you borrowed and have to pay back, plus what the lender charges for lending you the money
- Private mortgage insurance (PMI)—this is an extra layer of protection for the lender required with some loans. Certain lenders also require it with conventional loans if the government does not back them.
- Hazard insurance—protects you as a homeowner against the costs of damage from fire, vandalism, smoke and other causes. It can be confused with a homeowner’s insurance policy, so it is important to clarify that it is not a separate policy but part of a homeowner’s policy.
- Property taxes—when you buy a home, your monthly mortgage payment may include property taxes. The county generally imposes these taxes, and often includes local taxes for school districts, utilities or city governments. Property tax rates and rules vary depending on your location. Contact your county assessor’s office for more information.
It’s common for your monthly mortgage payment to increase. On a fixed-rate mortgage, the principal and interest will remain the same. On an adjustable-rate mortgage, the interest rate can change periodically. Whether the loan is on a fixed-rate or an adjustable-rate mortgage, the mortgage payment can change due to changes in property taxes and insurance premiums.
There may be additional monthly expenses to take into account. As a homeowner, you’ll be responsible for all utilities and possibly homeowner association (HOA) dues. Also, if you’re purchasing a fixer-upper, you may choose to take out a renovation loan. This type of loan allows you to borrow money that includes the cost to buy the home, as well as the expense to complete your planned remodel. Your monthly mortgage payment may increase, but in addition to spreading the cost of renovations over the life of your loan, you’ll likely benefit at tax time.*
Is the monthly payment more than you can afford?
Don’t worry, you have options if the calculated monthly payment is outside of your budgeted range. According to the personal finance website the balance, one option is to borrow less by choosing a less expensive home. “It’s better to buy less and enjoy some wiggle room than to struggle to keep up with payments.” 1 You can also choose to extend the loan term. Note that with this option you will end up paying more interest on your mortgage over time. Lastly, if you buy a home with less than 20 percent down payment, some lenders will require private mortgage insurance. You can save money by putting down a larger down payment and avoiding this fee.
Now that you’ve calculated your monthly mortgage payment, get a more accurate estimate by requesting pre-approval for a mortgage by a lender. This process typically costs you nothing and gives you and your real estate agent a price range of homes you can afford. By starting the pre-approval process, you’ll be one step closer to home ownership.
* Please see a tax advisor for more information.
1 How to Calculate Your Mortgage Payment: Fixed, Variable, and More – the balance