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Our monthly payment estimates are broken down by principal and interest, property taxes and homeowners insurance. We take our calculator a step further by factoring in your credit score range, zip code and HOA fees to give you a more precise payment estimate. You’ll also go into the home-buying process with a more accurate picture of how to calculate mortgage payments and purchase with confidence. After you run some estimates, read on for more education and home-buying tips.
How to calculate mortgage payments
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:
This formula can help you crunch the numbers to see how much house you can afford. Using Bankrate.com’s tool to calculate your mortgage payments can take the work out of it for you and help you decide whether you’re putting enough money down or if you need to 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
Buying a home is often life’s largest financial transaction, and how you finance it shouldn’t be a snap decision. Setting a budget upfront -- long before you look at homes -- can help you avoid falling in love with a home you can’t afford. That’s where a simple mortgage calculator can help.
A mortgage payment includes four components called PITI: principal, interest, taxes and insurance. Many homebuyers know about these costs but what they’re not prepared for are the hidden costs of homeownership. These include homeowners association fees, private mortgage insurance, routine maintenance, larger utility bills and major repairs.
Bankrate.com’s mortgage loan calculator can help you factor in PITI and HOA fees. You also can adjust your loan and down payment amounts, interest rate and loan term to see how much your payments might change. It’s important to know that your specific interest rate will depend on your overall credit profile and debt-to-income, or DTI, ratio (the sum of all of your debts and new mortgage payment divided by your gross monthly income). The riskier the borrower, the higher the interest rate in many cases.
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. Most financial advisers agree that people should spend no more than 28 percent of their gross income on housing (i.e. mortgage payment), and no more than 36 percent of their gross income on total 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.
You can qualify for a mortgage with a DTI ratio of up to 50 percent for some loans, but you might not have enough wiggle room in your budget for other living expenses, retirement and emergency savings, and discretionary spending. Lenders don’t take those budget items into account when they preapprove you for a loan; it’s up to you to factor those expenses into your housing affordability picture.
Depending on where you live, your annual income could be more than enough to cover a mortgage -- or it could fall short. Knowing what you can afford can help you 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 willing to loan you the money.
A mortgage calculator is a springboard to helping you estimate your monthly mortgage payment and understand what it includes. Your next step after playing with the numbers: getting preapproved by a mortgage lender.
Applying for a mortgage will give you a more definitive idea of how much house you can afford after a lender has vetted your employment, income, credit and finances. You’ll also have a clearer idea of how much money you’ll need to bring to the closing table.
Mortgage Calculators: Alternative UseMost 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:
Mortgage Calculator HelpUsing 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 - 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% down typically lets you avoid mortgage insurance.
Mortgage 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.
Mortgage Term (Years) - This is the length of the mortgage you're considering. For example, if you're buying new, you may choose a mortgage loan that lasts 30 years. On the other hand, a homeowner who is refinancing may opt of a loan that lasts 15 years.
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 credit picture) you can plug it into the calculator.
Mortgage Start Date - Select the month, day and year when your mortgage payments will start.