Mortgage & Loan Calculator

How US mortgages work

Most American buyers take a 30-year fixed-rate loan: the rate is locked for the whole term, so the principal-and-interest payment never changes. A 15-year fixed costs more each month but far less in total. Adjustable-rate mortgages (ARMs) start with a fixed period and then reset against an index, so their payment after that period is unknown when you sign.

The payment this calculator shows is only part of what your servicer collects. Lenders commonly require an escrow account: each month you also pay a share of the estimated property tax and homeowners insurance, and the servicer pays those bills for you. Escrow is re-estimated every year, which is why a fixed-rate mortgage payment can still go up.

With a conventional loan and less than 20% down you'll usually pay private mortgage insurance (PMI). It protects the lender, not you — and it doesn't last for ever. You can ask for it to be cancelled once your balance is scheduled to reach 80% of the home's original value, and the servicer must end it automatically at 78% if you're current on payments (CFPB). Overpaying gets you to 80% sooner.

Before you commit, every lender must give you a standard Loan Estimate showing the rate, the APR, closing costs and any points. The format is identical across lenders, so put two or three side by side.

How loan payments work

A standard repayment mortgage or loan is fully amortizing: you pay the same amount every month, and by the final payment the loan is paid off completely. Each payment covers the interest accrued on the current balance, and whatever is left reduces the principal.

The formula behind it is:

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

where M is the monthly payment, P is the principal, r is the monthly interest rate (annual rate divided by 12), and n is the number of monthly payments. If the rate is zero, the payment is simply the principal divided by the number of months.

Worked example

Suppose you borrow $300,000 at 6.5% over 30 years — an illustrative loan for the United States, not a rate quote. The monthly rate is 6.5% ÷ 12 ≈ 0.5417%, and there are 360 payments. The formula gives a monthly payment of about $1,896. That single figure is where every comparison below starts.

What does 30 years of interest actually cost?

The monthly payment is what you qualify on; the total interest is what the loan costs you. They point in opposite directions, and the same $300,000 at 6.5% makes the point plainly:

• 30-year term: about $1,896 a month, roughly $682,633 paid in total — $382,633 of interest.
• 15-year term: about $2,613 a month, roughly $470,398 paid in total — $170,398 of interest.

A payment 38% higher saves $212,235 of interest. That trade — monthly cash flow against lifetime cost — is the single biggest decision in the whole mortgage, and it is the one the year-by-year breakdown above is there to make visible. Expand it and look at the first year: on the 30-year loan, only about $3,353 of your first twelve payments touches the principal.

How much does overpaying save?

Put an amount in the Monthly overpayment field. It is added to every payment and goes straight off the balance, so each later month is charged interest on a smaller sum. Your contractual payment doesn't change; the loan simply ends sooner.

On the $300,000 example, an extra $200 a month takes total interest from $382,633 to $279,185 — a saving of about $103,449, with the loan cleared 6 years 11 months early (23 years 1 month instead of 30 years).

US mortgages rarely charge prepayment penalties now, but servicers don't all apply extra money to principal by default — some hold it as next month's payment. Say “apply to principal” every time.

Before committing spare cash to the mortgage, it's worth pricing the alternative: the same $200 a month invested instead is the comparison that decides it. Roughly, overpaying wins when your mortgage rate beats the return you realistically expect after tax; investing wins when it doesn't. At 6.5% that is close enough to be worth calculating rather than assuming.

Can this tell me what I can afford?

It answers the question from the other end — it tells you what a given loan costs per month, not what loan your income supports. Either way, start with what your pay leaves after federal income tax and FICA, decide what share of that you're prepared to commit to housing, then raise the loan amount here until the payment hits that ceiling.

Leave room when you do it. The payment shown here is principal and interest only; in the United States you also pay property tax, homeowners insurance, HOA fees and PMI. A payment that exactly fills your budget on this page is a payment you can't afford.

Tips for the United States

• Remember the extras. This shows principal and interest only — property tax, homeowners insurance, HOA fees and PMI come on top.
• Budget for escrow, not just principal and interest. Property tax and insurance vary hugely by county and can add a large share on top of the figure above.
• Diarise the 80% point. Cancelling PMI on request isn't automatic — you have to ask your servicer in writing.
• Compare APR and points, not just the rate. A lower rate bought with discount points only pays off if you keep the loan long enough.

Monthly payment on $300,000, by rate and term

Principal and interest only, repayment loan, fixed rate for the whole term. Illustrative rates, not quotes.