Mortgage payment calculator with down payment and taxes

How to calculate mortgage payments

Your monthly mortgage costs include more than just loan payments and interest. So you can really crunch the numbers, we’ve included all the typical monthly costs you’ll be responsible for once you own a home.

Play around with different home prices, locations, down payments, interest rates, and mortgage lengths to see how they impact your monthly mortgage payments.

If you enter a down payment amount that’s less than 20% of the home price, private mortgage insurance (PMI) costs will be added to your monthly mortgage payment. As the costs of utilities can vary from county to county, we’ve included a utilities estimate that you can break down by service. If you’re thinking about buying a condo or into a community with a Homeowners Association (HOA), you can add HOA fees.

The only amounts we haven’t included are the money you’ll need to save for annual home maintenance/repairs or the costs of home improvements. To see how much home you can afford including these costs, take a look at the Better home affordability calculator.

Fun fact: Property tax rates are extremely localized, so 2 homes of roughly the same size and quality on either side of a municipal border could have very different tax rates. Buying in an area with a lower property tax rate may make it easier for you to afford a higher-priced home.

Ways this free mortgage calculator is different

This mortgage calculator shows your payments with taxes and insurance

When you own a home, you’re responsible for paying property taxes and homeowners insurance. Often these costs will be rolled in with your mortgage payments as it’s important—to both you and your lender—that these bills stay current to protect your investment.

The property taxes you pay help fund the services your local government provides for the community. These services include schools, libraries, roads, parks, water treatment, the police, and the fire department. Once your mortgage is paid off, you’ll still be required to pay property taxes. If you fall behind on your property taxes, you could end up losing your home to your local tax authority.

Your lender will typically insist on you having homeowners insurance while you’re paying off your mortgage. Lenders do this because they know from experience that no one wants to pay a mortgage on a property that’s burned down, damaged, or destroyed.

Fun fact: When you own your home free and clear, the decision to keep homeowners insurance is all yours. However, to ensure your home is covered for damage caused by fires, lightning strikes, and natural disasters that can affect your area, most people would recommend keeping it.

This mortgage calculator shows your mortgage costs with PMI

PMI, short for private mortgage insurance, helps homebuyers qualify for a mortgage without making a 20% down payment. By making a smaller down payment and selecting a mortgage with PMI, you can buy sooner and start building equity in your home while keeping cash in a savings account for when you need it.

Choosing a mortgage with PMI is a popular option: 71% of first-time homebuyers had a down payment of less than 20% in July 2021. In 2020, the median down payment for first-time homebuyers was just 7%, and it hasn’t risen above 10% since 1989.

PMI is automatically removed from conventional mortgages once the equity in your home reaches 22%. Alternatively, once you’ve earned at least 20% home equity, you can ask for PMI to be removed.

This mortgage calculator includes HOA fees

Homeowners association fees are typically charged directly by a homeowners association, but as HOA fees come part and parcel with condos, townhomes, and planned housing developments, they’re an essential factor to consider when calculating your mortgage costs.

Homes that share structural elements, like roofs and walls or community elements such as landscaping, pools, or BBQs, typically require homeowners to pay HOA fees to maintain the upkeep of these amenities. While you’re still in your budget planning stage, it’s good to remember that HOA fees typically increase annually. HOAs may also charge additional fees known as ‘special assessments’ to cover unexpected expenses from time to time.

How to reduce your monthly mortgage payments

The less you spend on the home’s purchase price, the lower your loan amount will be. But if the seller is less than willing to cut you a deal, you have other options.

Extend the length of your mortgage

The more time you have to pay off the mortgage, the less each monthly mortgage payment will be. (In lender-speak, ‘extending the length of your mortgage’ is known as ‘increasing your loan term’.) This is why people often choose a 30-year fixed rate mortgage over one with a 15- or 20-year term.

Increase your down payment

The smaller the amount of your mortgage, the smaller your monthly payments. If you’re able to put at least 20% of the home price towards your down payment, you’ll be able to avoid PMI. Even if you can’t afford a complete 20% down payment, boosting your down payment will help you get PMI removed sooner. In fact, boosting your down payment by 5% can lower your monthly PMI fees.

Get a lower interest rate

Increasing your down payment can be one way to help you qualify for a lower interest rate. The amount of your down payment compared to the total amount of the loan is called your loan-to-value ratio (LTV). Depending on your loan amount, a lower LTV may increase the likelihood of you of being offered a low interest rate.

If you intend on keeping your home for a while, you could consider buying points to reduce your interest rate. Buying points essentially means you agree to pay more upfront costs in exchange for a lower monthly payment.

If you think you may sell or refinance the home in the first 5-10 years of the mortgage, you could consider an adjustable-rate mortgage (ARM). An ARM offers a low fixed interest rate for a set introductory period—typically 5, 7, or 10 years. Once the set introductory period ends, the interest rate adjusts (sometimes it goes up, sometimes down). The introductory interest rate for ARMs is typically lower than the interest rate for a conventional fixed-rate mortgage which makes it a great way to save on interest if you know you won’t keep the mortgage for long.

If you’re not planning on buying a home for a while, improving your credit score is a tried and true way of increasing your chances of qualifying for a lower interest rate. By reducing your debt-to-income ratio (DTI), lenders will see that you comfortably afford your mortgage and be more willing to offer a lower interest rate.

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