Mortgage Calculator

How a mortgage works

A mortgage is a loan secured by the home you're buying. You borrow the difference between the price and your down payment, and repay it in equal monthly installments over a fixed term — most often 30 or 15 years. If you stop paying, the lender can foreclose, which is why mortgages carry lower rates than unsecured debt.

Each payment covers that month's interest first; whatever remains reduces your principal. Early on, interest dominates: in the first year of a $320,000 loan at 6.5%, about $20,700 of your roughly $24,300 in payments is interest. As the balance shrinks, the split flips, and by the final years nearly every dollar goes to principal. This schedule is called amortization, and it's why extra payments made early save so much more than the same payments made late.

Your full housing payment usually includes more than the loan. Lenders typically collect property tax and homeowners insurance monthly and hold them in an escrow account, paying the bills for you when they're due. That's why a mortgage calculator that shows only principal and interest can understate your real cost by hundreds of dollars a month.

What affects your mortgage rate

Your credit score is the biggest personal factor. Borrowers with scores above roughly 740 generally get the best pricing; scores below 680 can add a noticeable premium, and a difference of even half a percentage point changes your payment on a $320,000 loan by about $100 a month.

Your down payment and loan-to-value ratio matter too. Putting more money down lowers the lender's risk, which can improve your rate and removes the need for PMI at 20%. Debt-to-income ratio — your monthly debts divided by gross income — also affects approval and pricing; many lenders prefer it at or below 36% to 43%.

Loan type and term change the price. Fifteen-year loans usually carry lower rates than 30-year loans, and government-backed FHA, VA and USDA loans have their own pricing and insurance rules. You can also buy discount points: each point costs 1% of the loan amount upfront and lowers your rate, typically by around a quarter of a percentage point, though the exact trade varies by lender.

Finally, the market sets the baseline. Mortgage rates move with the broader bond market and inflation expectations, so the same borrower can see very different offers months apart. Because lenders price differently, getting at least three Loan Estimates on the same day is one of the simplest ways to save.

PMI: what it costs and how to get rid of it

Private mortgage insurance protects the lender — not you — when you put less than 20% down on a conventional loan. It typically costs between about 0.3% and 1.5% of the loan amount per year, depending mainly on your credit score and down payment, and it's usually added to your monthly payment.

PMI isn't permanent. Under the federal Homeowners Protection Act, you can ask your lender to cancel it once your balance reaches 80% of the home's original value, provided you're current on payments and meet the lender's requirements. It must end automatically when the balance is scheduled to reach 78%. Paying extra principal gets you to those thresholds sooner, and a significant rise in home value may let you remove it earlier with a new appraisal.

FHA loans work differently: they charge an upfront and an annual mortgage insurance premium, and with less than 10% down the annual premium generally lasts for the life of the loan unless you refinance.

15-year vs 30-year mortgage

A 30-year mortgage keeps the monthly payment as low as possible, which leaves room in your budget and makes it easier to qualify. The trade-off is time: you pay interest for twice as long, often at a slightly higher rate, so total interest is far greater.

A 15-year mortgage has a higher monthly payment but builds equity quickly and typically costs a fraction of the interest. Using this calculator's Compare mode on the example above, a 15-year loan at the same 6.5% rate costs about $765 more per month but saves around $226,000 in interest — and in practice the 15-year rate is usually lower, widening the gap.

A middle path many borrowers choose: take the 30-year loan for flexibility, then pay extra principal each month as if it were a 20- or 15-year loan. You keep the option to drop back to the lower required payment if money gets tight.

Seven ways to pay less interest on your mortgage

1. Shop multiple lenders. Request Loan Estimates from at least three lenders on the same day and compare the APR, not just the rate, so fees are included.

2. Raise your credit score before applying. Paying down credit card balances and correcting report errors can move you into a better pricing tier.

3. Put more down. A larger down payment shrinks the loan, can lower your rate, and avoids PMI at 20%.

4. Choose a shorter term if the payment fits. A 15- or 20-year loan cuts total interest dramatically.

5. Make extra principal payments. Even $100 to $200 a month, started early, can save tens of thousands of dollars and years of payments. Confirm with your servicer that extra money is applied to principal.

6. Consider biweekly payments. Paying half your payment every two weeks adds up to one extra full payment a year — just make sure your servicer doesn't charge a fee for it.

7. Refinance when it truly pays. If rates fall meaningfully below yours, divide the closing costs by your monthly savings to find your break-even point, and refinance only if you'll stay in the home well past it.