Understanding Your Mortgage Payment

A mortgage payment is determined by three main factors: the loan amount (home price minus down payment), the interest rate, and the loan term. Even small changes in rate can add up to tens of thousands of dollars over the life of the loan.

The Formula

M = P [ r(1+r)^n ] / [ (1+r)^n - 1 ]

Where M is the monthly payment, P is the principal (loan amount), r is the monthly interest rate (annual rate / 12), and n is the total number of payments (years x 12).

15-Year vs. 30-Year Mortgage

A 15-year mortgage has higher monthly payments but dramatically lower total interest. On a $320,000 loan at 6.5%, the 30-year total interest is about $407,000 while the 15-year total is roughly $172,000 -- a difference of $235,000.

How Much Should You Put Down?

• 20% down -- avoids private mortgage insurance (PMI) and gives you the lowest monthly payment
• 10-15% down -- a common middle ground; PMI adds $50-$200/month on a typical loan
• 3-5% down -- FHA and conventional low-down-payment options exist, but your monthly costs will be higher

What This Calculator Does Not Include

Real monthly housing costs also include property taxes, homeowner's insurance, HOA fees, and PMI if applicable. Budget an additional 30-40% on top of the principal-and-interest figure this calculator shows.