Mortgage Payment Calculator

A monthly mortgage payment is calculated using the formula: M = P[r(1+r)^n]/[(1+r)^n-1], where P is the loan principal, r is the monthly interest rate (annual rate divided by 12), and n is the total number of monthly payments. This formula gives you the fixed monthly payment that covers both principal and interest over the life of the loan.

Conventional wisdom suggests a 20% down payment to avoid Private Mortgage Insurance (PMI). However, many loan programs allow as little as 3-5% down. A larger down payment means lower monthly payments, less total interest paid, and potentially better interest rates. Consider your financial situation and emergency fund when deciding.

Private Mortgage Insurance (PMI) is typically required when your down payment is less than 20% of the home price. PMI protects the lender if you default on the loan. It usually costs between 0.5% and 1% of the loan amount per year and can be removed once you reach 20% equity in your home.

A fixed-rate mortgage has the same interest rate for the entire loan term, so your monthly payment stays consistent. An adjustable-rate mortgage (ARM) starts with a lower rate for an initial period (e.g., 5 or 7 years), then adjusts periodically based on market conditions. ARMs can save money initially but carry the risk of higher payments later.

A 15-year mortgage has higher monthly payments but saves significantly on total interest and builds equity faster. A 30-year mortgage offers lower monthly payments, giving you more cash flow flexibility. For example, on a $300,000 loan at 6%, a 15-year mortgage saves over $150,000 in interest compared to a 30-year mortgage.

Consider refinancing when interest rates drop at least 0.5-1% below your current rate, when you want to switch from an ARM to a fixed rate, when you want to shorten your loan term, or when you need to tap into home equity. Factor in closing costs (typically 2-5% of the loan amount) to ensure the savings outweigh the costs.