How a Mortgage Calculator Helps You Save
A mortgage is likely the largest debt you will ever take on, so understanding the math behind it is crucial. This calculator uses the standard amortization formula to determine your monthly principal and interest payments. By adjusting the interest rate or down payment, you can see exactly how these variables impact your monthly budget.
Understanding the Components
- Principal: The loan amount you borrow to purchase the home.
- Interest: The cost of borrowing money, expressed as an annual percentage rate (APR).
- Term: The length of time you have to repay the loan (commonly 15 or 30 years).
30-Year vs. 15-Year Mortgages
The two most common loan terms in the United States are the 30-year and 15-year fixed-rate mortgages. A 30-year fixed loan offers lower monthly payments but results in paying significantly more interest over the life of the loan. A 15-year fixed loan has higher monthly payments, but you build equity faster and pay far less interest total. Use our calculator to compare both scenarios by simply changing the "Loan Term" input.
How to Quality for a Lower Rate
Your interest rate is determined by your credit score, debt-to-income ratio, and down payment size. Generally, a credit score above 760 will qualify you for the best rates. Putting down at least 20% also eliminates the need for Private Mortgage Insurance (PMI), further reducing your monthly costs. We recommend checking your credit report for errors months before you intend to apply for a mortgage.