Estimate your monthly mortgage payment and total cost of homeownership.
A mortgage is a secured loan used to purchase real estate, where the property itself serves as collateral. Your monthly payment is divided between principal repayment and interest charges. In the early years of an amortization schedule, the majority of each payment goes toward interest. As the loan matures, more of each payment reduces the outstanding principal balance. Understanding this amortization structure helps homebuyers plan for the true cost of homeownership.
The standard amortization formula is: M = P × [r(1+r)n] / [(1+r)n – 1], where:
Note: Your total monthly housing payment also typically includes property taxes, homeowners insurance, and possibly private mortgage insurance (PMI) — collectively known as PITI (Principal, Interest, Taxes, Insurance). Many lenders collect these through an escrow account.
For a $350,000 home with 20% down payment ($70,000), a $280,000 loanat 6.5% interest for 30 years:
Your monthly mortgage payment is calculated using the amortization formula: M = P[r(1+r)ⁿ]/[(1+r)ⁿ – 1], where P is the loan principal, r is the monthly interest rate, and n is the total number of payments. This formula ensures each payment covers both principal and interest so the loan is fully repaid by the end of the term.
Private Mortgage Insurance (PMI) is required when your down payment is less than 20% of the home price. PMI typically costs 0.5% to 1% of the loan amount annually. You can request PMI removal once your loan-to-value (LTV) ratio reaches 80%, and it is automatically cancelled at 78% LTV.
A 15-year mortgage has higher monthly payments but saves significantly on total interest — often 50% or more compared to a 30-year term. A 30-year mortgage offers lower monthly payments and more cash flow flexibility. Choose based on your monthly budget and long-term financial goals.
A fixed-rate mortgage keeps the same interest rate for the entire loan term, providing predictable payments. An adjustable-rate mortgage (ARM) starts with a lower introductory rate that adjusts periodically based on market conditions. ARMs can save money short-term but carry the risk of rising payments.
A common guideline is the 28/36 rule: spend no more than 28% of your gross monthly income on housing costs (mortgage, taxes, insurance) and no more than 36% on total debt. For example, with a $6,000 monthly income, aim for a maximum mortgage payment of about $1,680.