Estimating Monthly Payments With a Mortgage Calculator

If you’re looking to buy a home soon, you may be wondering how much you can afford. In fact, one of the most important things you can do before putting in an offer is to find out how much you will pay per month by estimating your monthly payment.

The RealtyHop Mortgage Calculator is an interactive tool to help you visualize your monthly payment amount. You can input all available information you have on a property to understand how amortization affects the amount you will pay toward your loan principal and interest for the duration of the mortgage.

Homebuyers should provide their purchase price, down payment amount, interest rate, and loan term to paint an accurate picture of their monthly payments. Additionally, the mortgage calculator allows homeowners to input their maintenance or HOA costs, property taxes, homeowner’s insurance, and mortgage insurance to get an accurate breakdown of their expected monthly expenditure.

The mortgage calculator provides accurate information about monthly costs. Continue reading to learn more about how the calculator works and further understand the different costs contributing to your monthly payments.

Amortization is the process of making payments each month to gradually lower the amount you owe. When you submit your monthly mortgage payment, part of it goes toward interest, and the remainder goes toward your principal balance. Over the loan’s term, the split between principal and interest shifts, where a borrower initially puts most of their payment toward the interest. Toward the end of the loan term, as you owe less and therefore are responsible for less interest, more of your payment then goes to the principal. While the split between principal and interest changes, the actual monthly payment amount does not change.

Our amortization schedule, therefore, depicts the shift in principal and interest. When you input your information into the calculator, you will see the exact amount that you pay toward your principal and interest in a given month on your mortgage. The interactive sliding feature allows you to drag to a specific month or point in time to see the breakdown for that month, which includes your remaining mortgage balance, principal paid, and interest paid.

You can further break down your monthly payment allocation via the amortization schedule below. The schedule describes the distribution between principal and interest for each monthly payment. On a standard 30-year mortgage, borrowers will see that by month 176, or 14 years and eight months after their first payment, more of their payment goes toward the principal. You can even download this table as a CSV file.

Amortization Formula

The amortization formula calculates the payment amount for the month you calculat for, based on the principal amount, interest rate, and total number of payments. Our mortgage calculator automatically completes the below equation to yield your estimated monthly payment.

In the above equation, P represents the principal amount, i rerpesents the periodic interest rate, and n represents the total number of payments. Completing the equation above calculates the monthly mortgage payment amount (A).

The following is an example of a calculation for a mortgage payment with a mortgage amount of $949,000, the median home purchase price for a New York City property as of July 2022. This example calculates the monthly payment amount for a 30-year mortgage a mortgage with a 5% interest rate. In this example, n equals 360, as that is how many months are in the mortgage.

While the above calculation suggests that a person who purchases this home will pay $3,796 per month, there are several other factors which determine a monthly mortgage payment amount.

In most cases, a mortgage payment consists of five main parts: the principal (purchase price), interest, real estate taxes, homeowner insurance, and HOA fees. Use the mortgage calculator for a list of all the payments and terms associated with monthly mortgage payments.

Purchase price

The price of the home you purchase directly influences how much you must pay each month. Your purchase price is the actual amount of the home that you must pay off to have full ownership of your property.

Interest rate

The interest is the amount of money your lender makes back from allowing you to borrow with them. Interest rates, therefore, represent the fee you pay the lender. Your mortgage interst rate could be fixed throughout the loan, or it could flucuate based on a bechmark rate, like for an adjustable-rate mortgage (ARM). Amortization enables you to target your interest payments first to ensure they do not exponentially grow to an unreachable cost by the end of your mortgage term.

As of 2022, interest rates now reside closer to 5-6%, as opposed to 2-3% homeowners witnessed in years prior. Homebuyers have less purchase power with higher interest rates, as a more significant portion of their monthly payments consists of paying off the interest. There are, however, ways to lower your interest rate.

Property taxes

Homeowners must pay their property taxes, which go toward their municipality. The amount a homeowner will pay in property taxes depends on the assessed value and the area, as some municipalities charge more for their taxes than others. Taxes then go toward community functions and features like education and improving roads.

Homeowner insurance

Most mortgage lenders require that you arrive at your closing with a homeowner’s insurance policy. Homeowner’s insurance financially covers you if your property suffers damages. An average New York homeowner spends $100 monthly on their insurance policy.

HOA fees

Some homeowners may purchase a property in a community with a Homeowners Association, where members must pay their HOA fees. While in the home searching process, prospective homeowners should ask their agent if the home is part of an HOA. The money paid toward an HOA benefits the community and may cover association insurance, maintenance, and amenities.

While making monthly mortgage payments chips away at the amount due on your loan, there are also ways to shorten the amount of time you spend paying off your mortgage. Once you fully satisfy the mortgage requirements, you acquire full property ownership.

Make larger monthly payments

While you must pay the amount of your monthly mortgage payment, you can exceed that payment and contribute more toward your loan. Over time, you will owe less on your property than initially reflected on your mortgage, and you may satisfy the total amount before the end of the mortgage term.

You can also make additional payments on top of your monthly mortgage payment. You could make extra payments to decrease your balance if you receive extra income through work-related bonuses, secondary jobs, etc.

Recast your mortgage

If you receive an inheritance or another large sum of money, you can pay off a substantial portion of your mortgage at once. When you recast your mortgage, you do not decrease the actual term length of your loan, instead amortizing the amount faster and lowering your monthly payments.

However, you can then exceed those monthly payments, perhaps paying the same amount you were used to before recasting, and then quickly pay off the remainder of the mortgage.

Select a shorter mortgage term

While most homeowners select a standard 30-year mortgage, some lenders provide the opportunity to take out a loan with a shorter term, usually 15 or 20 years. This shorter term means you will spend more money each month on your mortgage payments but will spend less time paying off the mortgage and therefore acquire full ownership of the home in a shorter period.

Refinance your mortgage

Refinancing allows you to revisit your mortgage terms and take out a new mortgage that best fits your needs. When you refinance, you could decide to start a new 30-year mortgage term, reducing your monthly payment amount but increasing the amount of time it takes to satisfy your mortgage. You, of course, could shorten your loan term to repay the loan quickly. However, keep in mind that when you refinance your mortgage, you are essentially replacing it with a new mortgage, and you will have to pay closing costs for the new one to cover lender’s fees, appraisal fee, etc.

Make a larger down payment Homebuyers must spend at least 3% of the purchase price toward the down payment, which goes toward the home's purchase price. Some homeowners may spend 3% or 5% toward their down payment, while many homebuyers put 20% down. However, you can put more than 20%, and the more you put toward the down payment, the less you must pay off with a mortgage. Lowering your monthly mortgage payment can pay off the mortgage quickly, as you can exceed your monthly payment amount.

How do I determine how much home I can afford?

When determining how much you can afford to spend on a home, use the mortgage calculator to understand your total expected monthly expenses. Knowing how much you will pay toward your principal and interest will help paint a picture of your financial situation. Still, you must consider the above-mentioned factors like homeowner’s insurance, property taxes, etc.

As a general rule of thumb, your mortgage payment should not exceed 28% of your monthly gross income or 36% of your total debt. Consider the following example, where you make $4,000 a month pre-tax and your monthly debt, which includes an auto loan and insurance, is $300. Based on the 28/36 rule, you can afford a home that would cost you $1,120 per month.

Your debt-to-income ratio (DTI) will then be 35.5%, as ($300+1120)/$4,000 = 35.5%.

While our mortgage calculator will automatically complete some of these calculations for you based on our information, you also can modify those amounts based on quotes you receive from providers. Note that the calculator does not automatically input property tax or HOA fee amounts.

Once you develop your budget for your monthly mortgage payment, you should also consider the amount you will have to pay for the hidden costs associated with owning property.

Does earnest money affect my monthly payments?

Many homebuyers submit an offer to the seller with a good faith deposit, also referred to as earnest money. Should the sale fall through at that point, the seller keeps the earnest money. If the deal closes, the earnest money goes toward the down payment.

The earnest money lives in an escrow account, where the buyer and seller cannot access the funds until the sale falls through or closes. At this point, the money goes toward the appropriate recipient.

Homebuyers do not make sizeable good faith deposits, so giving a larger deposit will not drastically affect your monthly mortgage payments. However, making a large down payment will reduce the amount you owe each month on your mortgage, giving you the flexibility to make higher payments that pay off your mortgage quickly.

What are the different kinds of mortgages?

Homebuyers can utilize different varieties of loans to finance their home. Many homebuyers use conventional mortgages that are funded through private lenders and not through the government. Conventional mortgages are typically less expensive than government-backed mortgages, but homebuyers must meet stricter requirements to qualify. Additionally, lenders prefer that homebuyers put 20% toward their down payment and require that those who put down less acquire private mortgage insurance (PMI). Borrowers can use a private lender or one of two government-insured agencies, Fannie Mae or Freddie Mac, to obtain a conventional mortgage.

Government-backed loans are also a popular option for homeowners who may not qualify for conventional mortgages. Three federal agencies insure mortgages, including the FederalFederal Housing Administration (FHA), the U.S. Department of Agriculture (USDA), and the Department of Veterans Affairs (VA). Each mortgage has different requirements, like a borrower who seeks a USDA loan must purchase a home in a rural area. Potential borrowers should review the various conditions and find a private lender who provides that type of mortgage.

Those looking to finance a home but who seek a lower interest rate can consider an adjustable rate mortgage (ARM). With this type of mortgage, the interest rate adjusts based on current market value, where homeowners typically start with a lower interest rate that increases as the term progresses. Homeowners have a several year-long period at the start of the loan with a fixed, low interest rate, that then becomes subject to fluctuation when the adjustment period begins. Homeowners who choose this kind of mortgage should exercise caution and know that they may need to adjust their budgets down the line.

Homebuyers can also finance their purchase with a jumbo loan if they purchase a home where they require coverage that exceeds the conventional conforming loan amount. Since borrowers receive more funding through a jumbo loan, they must meet more stringent requirements. Jumbo loans are non-conforming loans which still categorize as conventional loans.