Mortgage Calculator

Mortgage calculator: how it works

Buying a home is the largest financial commitment most people make. A small change in the interest rate or the loan term can move the lifetime cost of your mortgage by tens of thousands of dollars. Our free mortgage calculator runs the standard amortization formula in your browser and gives you the monthly principal-and-interest payment, total interest paid over the life of the loan, and total cost.

The amortization formula

Every fixed-rate mortgage in the US, UK, Canada, Australia and most other markets uses the same equation:

M = P × [ r(1 + r)^n ] / [ (1 + r)^n − 1 ]

Where:
M = monthly payment
P = principal (loan amount = home price − down payment)
r = monthly interest rate (annual rate ÷ 12)
n = total number of payments (years × 12)

On a $300,000 loan at 6.5% for 30 years (n = 360, r = 0.005417), the formula returns roughly $1,896/month. Over 30 years you will pay about $382,000 in interest — more than the loan itself. Cut the term to 15 years and the monthly payment rises to about $2,613, but total interest drops to roughly $170,000. The two numbers that move this needle the most are always the interest rate and the term.

What the monthly payment does not include

Our calculator shows the principal-and-interest portion only. Your actual housing payment almost always includes four extra costs you should budget for separately:

• Property taxes — typically 0.5% to 2.5% of the home value annually, depending on state and county. In the US, these are usually collected by the lender as part of escrow and paid to the local government on your behalf.
• Homeowner's insurance — required by all mortgage lenders. Average cost in the US is $1,200–$2,500/year; it depends on home value, location, and risk factors (flood, wildfire, hurricane zones).
• Private Mortgage Insurance (PMI) — required if your down payment is under 20%. Adds 0.5%–1.5% of the loan amount per year. Once you build 20% equity, you can request that PMI be cancelled.
• HOA dues — for condos and many planned communities. Ranges from $50 to $1,000+ per month.

Add these up and your real monthly housing cost is typically 20–35% higher than the P&I figure shown by any mortgage calculator. The acronym for the full payment is PITI: principal, interest, taxes, insurance.

The 28/36 affordability rule

Lenders and financial advisers use two debt-to-income ratios to decide how much house you can afford:

• Front-end ratio (28%): your total monthly housing cost (PITI) should be no more than 28% of your gross monthly income.
• Back-end ratio (36%): your total monthly debt payments (housing + car loans + student loans + minimum credit-card payments) should be no more than 36% of gross monthly income.

If you earn $8,000/month gross, your target PITI is around $2,240, and your total monthly debt should stay under $2,880. Stretching these ratios is technically possible — many lenders will approve up to 43% or even 50% back-end — but doing so leaves no room for retirement saving, emergencies, or lifestyle. Treat 28/36 as a ceiling, not a goal.

How interest rate changes affect your payment

Most people underestimate how much a single percentage point matters. On a $400,000 loan over 30 years:

• 5.5% rate → $2,271/month, $417,610 total interest
• 6.5% rate → $2,528/month, $510,178 total interest
• 7.5% rate → $2,797/month, $607,001 total interest

That two-point spread costs nearly $190,000 over the life of the loan. If you can lock in a rate today that you expect to fall over the next year, refinancing later is straightforward — but never count on a refinance to fix a payment you can't afford right now.

15-year vs 30-year mortgage

The 30-year fixed is the default for most US buyers because it minimises the monthly payment. The 15-year wins on lifetime cost — usually saving 50–60% of the interest. The choice comes down to cashflow:

• Take the 30-year if you want lower required payments and the flexibility to invest the difference, build an emergency fund, or pay extra principal voluntarily.
• Take the 15-year if you can comfortably afford the higher payment and want a guaranteed faster path to debt freedom. Bonus: 15-year rates are usually 0.5%–0.75% lower than 30-year rates because lenders take less duration risk.

Should you pay off the mortgage early?

The math depends on your effective after-tax mortgage rate versus the expected return on your alternative investment. If your mortgage is 7% and the S&P 500 has historically returned 7% real after-inflation, you're roughly indifferent — but paying off the mortgage is guaranteed and tax-free, while market returns are not. At 3–4% mortgage rates, investing usually wins handily. At today's higher rates, accelerating principal looks more attractive than at any point in the last 15 years.

One important detail: in the US, mortgage interest is only deductible if you itemise deductions, and the 2017 Tax Cuts and Jobs Act raised the standard deduction enough that most homeowners no longer benefit. Don't assume your "effective" mortgage rate is materially below the headline rate unless you confirm with your tax return.

Related calculators

• Loan / EMI Calculator — for car loans, personal loans, and student loans.
• Compound Interest Calculator — to model what investing the difference between a 15- and 30-year payment would compound to.
• Percentage Calculator — for quick down-payment and PMI threshold math.