Calculate your monthly mortgage payment with taxes, insurance, PMI, and HOA fees. Get detailed amortization schedule and total interest breakdown.
Required if down payment < 20%
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A mortgage is a loan specifically used to purchase real estate property. The property itself serves as collateral for the loan. When you take out a mortgage, you agree to pay back the borrowed amount (principal) plus interest over a specified period (loan term), typically 15 or 30 years.
The monthly payment for a fixed-rate mortgage is calculated using the following formula:
Let's calculate the monthly payment for a $240,000 loan at 6.5% annual interest for 30 years:
The principal is the original loan amount borrowed. It's calculated as:
The interest rate is the cost of borrowing money, expressed as an annual percentage. It's determined by market conditions, your credit score, loan type, and down payment amount.
The loan term is the length of time you have to repay the loan. Common terms are:
The down payment is the upfront cash payment you make toward the home purchase. Standard down payment percentages:
| Cost | Description | Typical Amount |
|---|---|---|
| Property Tax | Annual tax on property value assessed by local government | 1-2% of home value/year |
| Home Insurance | Protects against damage, theft, and liability | $1,000-$2,000/year |
| PMI | Private Mortgage Insurance (if down payment < 20%) | 0.5-1.5% of loan/year |
| HOA Fees | Homeowners Association fees for shared amenities | $200-$400/month |
Interest rate remains constant throughout the entire loan term.
Interest rate can change periodically based on market conditions.
Federal Housing Administration insured loan for first-time buyers.
Department of Veterans Affairs loan for eligible military members.
Amortization is the process of paying off a loan through regular, scheduled payments. Each payment consists of two parts:
Early in the loan, most of your payment goes toward interest. As you pay down the principal, more of each payment goes toward the principal itself. This is because interest is calculated on the remaining balance.
For a $240,000 loan at 6.5% for 30 years (monthly payment = $1,517.02):
| Payment # | Payment | Principal | Interest | Balance |
|---|---|---|---|---|
| 1 | $1,517.02 | $217.02 | $1,300.00 | $239,782.98 |
| 2 | $1,517.02 | $218.20 | $1,298.82 | $239,564.78 |
| 180 | $1,517.02 | $758.51 | $758.51 | $139,847.29 |
| 360 | $1,517.02 | $1,508.85 | $8.17 | $0.00 |
Putting down 20% or more eliminates PMI and reduces your loan amount, saving thousands in interest over the life of the loan. Every additional dollar down reduces the principal and the total interest paid.
A 15-year mortgage has higher monthly payments but significantly lower total interest. For example, on a $240,000 loan at 6%, you'll pay about $146,000 less in interest with a 15-year term compared to 30 years.
Even small extra payments toward principal can save thousands. Paying just $100 extra per month on a $240,000, 30-year loan at 6.5% can save over $44,000 in interest and shave 5 years off your loan term.
If interest rates fall significantly (typically 0.5-1% or more), refinancing can lower your monthly payment and total interest. However, factor in closing costs (2-5% of loan) and ensure you'll stay in the home long enough to recoup these costs.
A higher credit score qualifies you for better interest rates. Improving your score from 680 to 760 could reduce your rate by 0.5-1%, saving tens of thousands over a 30-year loan.
| Factor | 15-Year | 30-Year |
|---|---|---|
| Loan Amount | $240,000 | $240,000 |
| Interest Rate | 5.5% | 6.5% |
| Monthly Payment | $1,961.63 | $1,517.02 |
| Total Interest Paid | $113,093 | $306,125 |
| Total Paid | $353,093 | $546,125 |
| Interest Savings | $193,032 | - |
Private Mortgage Insurance (PMI) is required when your down payment is less than 20% of the home's value. It protects the lender if you default on the loan. PMI typically costs 0.5-1.5% of the loan amount annually and can be removed once you reach 20% equity.
A general rule is the 28/36 rule: your monthly housing costs shouldn't exceed 28% of gross monthly income, and total debt payments shouldn't exceed 36%. For example, with $6,000 monthly income, aim for housing costs under $1,680 and total debt under $2,160.
Discount points let you pay upfront to reduce your interest rate (typically 1 point = 1% of loan = 0.25% rate reduction). This makes sense if you plan to stay in the home long enough to recoup the cost through monthly savings (usually 5-7 years).
Closing costs are fees due when finalizing your mortgage, typically 2-5% of the loan amount. They include appraisal fees, title insurance, origination fees, attorney fees, and prepaid items like property taxes and insurance. On a $240,000 loan, expect $4,800-$12,000 in closing costs.
It depends on your situation. Benefits include interest savings and debt-free homeownership. However, if your mortgage rate is low (below 4-5%), you might earn better returns investing extra money elsewhere. Also consider tax deductions on mortgage interest and maintaining emergency savings.
An escrow account holds funds for property taxes and insurance. Your lender collects 1/12 of annual costs each month and pays these bills when due. This ensures taxes and insurance stay current, protecting both you and the lender.
Credit score heavily influences your interest rate and loan approval:
Pre-qualification is an informal estimate based on self-reported financial information. Pre-approval involves verification of income, assets, and credit, resulting in a conditional commitment from the lender. Pre-approval carries more weight when making offers.
Yes, through refinancing. If you have an adjustable-rate mortgage (ARM) and want the stability of a fixed rate, you can refinance. Consider refinancing before your ARM adjusts upward, but factor in closing costs and how long you plan to stay in the home.
Missing one payment results in late fees (typically 4-5% of payment) and credit score damage. After 30 days, it's reported to credit bureaus. Multiple missed payments lead to default, and eventually foreclosure. Contact your lender immediately if you're struggling—they often have hardship programs, forbearance, or loan modification options.