Mortgage calculator & Working with lenders

 The formula behind mortgage payments is complicated, but our Mortgage Calculator makes this math problem quick and easy.

First, next to the space labeled "Home price," enter the price (if you're buying) or the current value of your home (if you're refinancing).

In the "Down payment" section, type in the amount of your down payment (if you’re buying) or the amount of equity you have (if you’re refinancing). A down payment is the cash you pay upfront for a home, and home equity is the value of the home, minus what you owe. You can enter either a dollar amount or the percentage of the purchase price you’re putting down.

Next, you’ll see “Length of loan.” Choose the term — usually 30 years, but maybe 20, 15 or 10 — and our calculator adjusts the repayment schedule.

Finally, in the "Interest rate" box, enter the rate you expect to pay. Our calculator defaults to the current average rate, but you can adjust the percentage.

As you enter these figures, a new amount for principal and interest will appear to the right. Our mortgage calculator also estimates property taxes, homeowner's insurance and homeowner's association fees. You can edit these amounts or even ignore them as you’re shopping for a loan — those costs might be rolled into your escrow payment, but they don’t affect your principal and interest as you explore your options. 

 If you’re not sure how much of your income should go toward housing, follow the tried-and-true 28/36 percent rule. Most all financial advisors agree that people should spend no more than 28 percent of their gross income on housing (i.e., your mortgage payment), and less than 36 percent of their gross income on total debt, including mortgage payments, credit cards, student loans, medical bills and the like. 

Here’s an example of what this looks like:

Bob makes $60,000 a year. That’s a gross monthly income of $5,000 a month. $5,000 x 0.28 = $1,400 total monthly mortgage payment (PITI)

Bob's total monthly mortgage payments — including principal, interest, taxes and insurance — shouldn’t exceed $1,400 per month. That’s a maximum loan amount of roughly $253,379. 

You can qualify for a mortgage with a debt-to-income (DTI) ratio of up to 50 percent for some loans, but you might not have enough wiggle room in your budget for other living expenses, retirement, emergency savings and discretionary spending if you stretch yourself too thin.  Lenders don’t take those budget items into account when they preapprove you for a loan, so it’s up to you to factor those expenses into your housing affordability picture for yourself. The knowledge of what you can afford can help you take financially sound next steps. 

The last thing you want to do is jump into a 30-year home loan that’s too expensive for your budget, even if a lender is willing to loan you the money.