Estimating your mortgage payment can help you decide if you’re ready to buy a home. That monthly payment is likely to be the biggest part of your homeowning overhead. Using this tool to calculate your mortgage payment can help you run various scenarios in your decision process for buying a home. You may consider:
Mortgage payment calculator
Can I lower my monthly payment?
Here are ways you can lower your monthly payment:
- Extend the loan’s term. Your payment will be lower but you’ll pay a lot more interest over the added years. You can change your loan term in the calculator to see the impact on your monthly payment.
- Buy less house. Obviously, taking out a smaller loan means a smaller monthly mortgage payment.
- Avoid paying PMI. By putting down 20% or more, you won’t have to pay private mortgage insurance. However, if you’re looking at FHA loans, mortgage insurance can last for the entire length of the loan.
- Get a better interest rate. Putting more money down not only can eliminate PMI, but lower your interest rate, too. That means a lower monthly mortgage payment. Shopping at least three lenders can also increase your odds of getting a better mortgage interest rate.
For the paper-and-pencil mathletes out there, the mortgage payment calculation looks like this:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
The variables are:
- M = monthly mortgage payment
- P = the principal amount
- i = your monthly interest rate. Your lender likely lists interest rates as an annual figure, so you’ll need to divide by 12, for each month of the year. So, if your rate is 5%, then the monthly rate will look like this: 0.05/12 = 0.004167.
- n = the number of payments over the life of the loan. If you take out a 30-year fixed rate mortgage, this means: n = 30 years x 12 months per year, or 360 payments.