Reading this estimate
The payment headline includes principal and interest plus the initial tax, insurance and HOA inputs divided by 12. PMI is estimated at 0.5% of the original loan per year when down payment is below 20%. Closing costs appear in cash needed at purchase, while the entered annual increases show how recurring ownership costs can change. This is an illustration, not an FHA or VA insurance calculation or a lender quote.
For a $400,000 home with 20% down, $320,000 is financed. At 6.5% over 360 months, principal and interest are about $2,022.62. Property tax at 1.2% adds $400 per month and $1,500 annual insurance adds $125, giving approximately $2,547.62 before HOA or extras. Budget mode rounds the estimated price down to the nearest $100; it does not check income, credit, other debts or closing funds.
How your mortgage payment is calculated
A mortgage payment has two parts that go to the lender and several that do not. The principal and interest portion is fixed for the life of a fixed-rate loan and is calculated with the standard amortization formula. Taxes and insurance may be collected through escrow; HOA dues are often paid separately. These costs can change over time.
The principal and interest payment comes from this formula, where M is the monthly payment, P is the loan principal, r is the monthly interest rate (the annual rate divided by 12), and n is the total number of payments:
- M = P × [ r(1 + r)^n ] / [ (1 + r)^n − 1 ]
- Principal: the amount you borrowed, which is the home price minus your down payment.
- Interest: the lender's charge, largest in the early years when the balance is highest.
- Escrow: taxes and insurance, which the lender collects and pays on your behalf.
| Rate | Monthly P&I | Total interest | Total paid |
|---|---|---|---|
| 4% | $1,528 | $229,982 | $549,982 |
| 5% | $1,718 | $298,419 | $618,419 |
| 6% | $1,919 | $370,682 | $690,682 |
| 6.5% | $2,023 | $408,142 | $728,142 |
| 7% | $2,129 | $446,428 | $766,428 |
| 8% | $2,348 | $525,297 | $845,297 |
The four costs beyond principal and interest
A principal-and-interest estimate does not include every recurring housing cost. Check these additional line items against the property and loan you are considering.
| Line item | Typical range | Fixed? | Notes |
|---|---|---|---|
| Principal & interest | Set by loan, rate and term | Yes, on a fixed-rate loan | The only part the calculator can state exactly |
| Property tax | 0.3% – 2.5% of value per year | No | Reassessed periodically; varies enormously by state and county |
| Homeowners insurance | $1,200 – $2,000 a year nationally | No | Several times higher in coastal and wildfire-prone areas |
| Private mortgage insurance | 0.3% – 1.5% of loan per year | Ends at 20% equity | Only with under 20% down on a conventional loan |
| HOA dues | $0 – $1,000+ a month | No | Condos and planned communities; counted in debt-to-income |
| Maintenance (not in the payment) | 1% – 2% of value per year | No | Budget for it separately; lenders ignore it |
Property taxes
Assessed annually by your county as a percentage of the home's value, typically between 0.3% and 2.5% depending on the state. On a $400,000 home at 1.2%, that is $4,800 per year, or $400 per month. Property taxes rise as assessed values rise, so this portion of your payment is not fixed even on a fixed-rate mortgage.
Homeowners insurance
Lenders require coverage for as long as you carry a mortgage. National averages run $1,200 to $2,000 per year, but coastal and wildfire-prone regions can cost several times that. Premiums have risen sharply in recent years in high-risk areas.
Private mortgage insurance (PMI)
If your down payment is under 20%, lenders typically require PMI, which protects the lender rather than you. It usually costs 0.3% to 1.5% of the loan amount per year. PMI is not permanent. Under the Homeowners Protection Act you can ask the servicer to cancel it once the balance is scheduled to reach 80% of the home's original value, and it must end automatically on the date the original amortization schedule reaches 78% (12 U.S.C. 4902(b)), or at the midpoint of the loan term if that comes first (12 U.S.C. 4902(c)), provided your payments are current. The calculator's total housing outlay counts PMI only until that automatic termination.
HOA fees
Condominiums and planned communities charge dues for shared maintenance, ranging from under $100 to well over $1,000 monthly. Lenders count HOA dues toward your debt-to-income ratio, so high fees directly reduce how much home you can qualify for.
How the loan term changes your total cost
A shorter term means a higher monthly payment but dramatically less interest. Consider a $320,000 loan at 6.5%: over 30 years the monthly principal and interest is about $2,023 and total interest is roughly $408,000. Over 15 years the payment rises to about $2,788, but total interest falls to roughly $182,000 — a saving of more than $225,000.
The trade-off is flexibility. A 30-year loan with voluntary extra payments gives you much of the interest saving while preserving the option to fall back to the lower required payment if your income changes. A 15-year loan locks in the higher obligation.
| Term | Monthly P&I | Total interest | Total paid |
|---|---|---|---|
| 10 years | $3,634 | $116,024 | $436,024 |
| 15 years | $2,788 | $181,758 | $501,758 |
| 20 years | $2,386 | $252,600 | $572,600 |
| 30 years | $2,023 | $408,142 | $728,142 |
Paying off your mortgage early
Any payment above the required amount goes straight to principal, which removes all the future interest that principal would have accrued. Because early payments are mostly interest, extra principal in the first years has by far the largest effect.
| Strategy | How it works | Paid off after | Interest saved |
|---|---|---|---|
| No extra payments | Required payment only | 30 yr | $0 |
| Extra $200 every month | $2,400 a year to principal | 23 yr 5 mo | $105,429 |
| Extra $500 every month | $6,000 a year to principal | 18 yr | $185,552 |
| Accelerated biweekly | Half payment every two weeks — 13 payments a year | 24 yr 2 mo | $93,997 |
| Extra $2,400 each December | One extra payment-sized lump a year | 23 yr 7 mo | $101,552 |
| One-time $10,000 in month 12 | A single early lump sum | 27 yr 7 mo | $50,537 |
| One-time $10,000 in month 180 | The same lump sum, halfway through | 29 yr | $15,616 |
Strategies that work
Adding a fixed amount monthly is the simplest approach and the calculator above shows the effect immediately. Biweekly payments — half your payment every two weeks — produce 26 half-payments, equal to 13 monthly payments per year, and typically cut four to six years off a 30-year term. Applying windfalls such as tax refunds or bonuses directly to principal works similarly.
When not to prepay
Prepaying a low-rate mortgage is rarely the best use of cash. If your rate is 3% and you can reliably earn more elsewhere, or you carry credit card debt at 20%, or you lack an emergency fund, or you are not capturing a full employer retirement match, those uses come first. Home equity is also illiquid — you cannot spend it without selling or borrowing against it. Check for prepayment penalties, though they are uncommon on modern conforming loans.
How much house can you afford?
Two rules of thumb bound the answer. The 28/36 rule says your housing payment should stay under 28% of gross monthly income and your total debt payments under 36%. Lenders themselves will often approve up to a 43% debt-to-income ratio, and sometimes higher, which is why an approval amount is a ceiling rather than a recommendation.
Also budget for maintenance, which the payment calculation ignores entirely. A common planning figure is 1% to 2% of the home's value per year — $4,000 to $8,000 annually on a $400,000 house — for roofing, HVAC, plumbing, and the rest.
| Loan type | Minimum down | Mortgage insurance | Notes |
|---|---|---|---|
| Conventional | 3% – 5% | PMI under 20% down; cancel on request at 80% LTV, ends automatically at 78% | Best rates with strong credit; conforming limits apply |
| FHA | 3.5% (580+ credit) | Upfront 1.75% plus annual MIP, often for the life of the loan under 10% down | Easier credit qualification; higher long-run cost |
| VA | 0% | None; one-time funding fee instead | Eligible service members and veterans |
| USDA | 0% | Upfront and annual guarantee fee | Eligible rural and some suburban areas; income limits |
| Jumbo | Typically 10% – 20% | Usually none required, priced into the rate | Above conforming limits; stricter reserves and credit |
UK and Canada modes
Set “Mortgage rules for” to United Kingdom or Canada. Links without this setting open the US calculator exactly as before; the UK and Canada views share the price, deposit, term and rate you entered.
United Kingdom: amounts are in pounds, with no PMI and no US property tax. A repayment mortgage uses M = P · i(1 + i)^n ÷ ((1 + i)^n − 1) with i = annual rate ÷ 12. An interest-only mortgage pays P × i each month and leaves the whole balance to repay at the end of the term. Example: a £300,000 home with a 10% deposit borrows £270,000; at 4.5% over 25 years the repayment is £1,500.75 a month, or £1,012.50 interest-only. Stamp Duty Land Tax, council tax and lender fees are not included.
Canada: the Interest Act requires a blended-payment mortgage to state its rate calculated yearly or half-yearly, not in advance, and fixed-rate lenders quote half-yearly compounding. The rate per payment is therefore (1 + r ÷ 2)^(2 ÷ p) − 1 for p payments a year, so the monthly rate is (1 + r ÷ 2)^(2/12) − 1 rather than r ÷ 12. Example: C$400,000 at 5% over 25 years has a monthly rate of 1.025^(1/6) − 1 = 0.41239% and a payment of C$2,326.42. That is C$11.94 less than the C$2,338.36 a US-style r ÷ 12 would give.
Accelerated bi-weekly pays half the monthly payment every two weeks: 26 half-payments come to 13 monthly payments a year. In the example that is C$1,163.21 every two weeks and it clears the loan in about 21.5 years instead of 25. Accelerated weekly pays a quarter of the monthly payment every week. Plain bi-weekly and weekly payments are set so the loan still takes the full amortization. CMHC default insurance (required below 20% down), property tax and land transfer tax are not included.