Calculate Your Mortgage Payment
Current Mortgage Rates & Guidelines
| Loan Type | Current Rate Range | Down Payment Required | Credit Score Minimum | Max Debt-to-Income Ratio |
|---|---|---|---|---|
| 30-Year Fixed Conventional | 6.0% - 7.5% | 3% - 20% | 620 | 43% - 50% |
| 15-Year Fixed Conventional | 5.5% - 7.0% | 3% - 20% | 620 | 43% - 50% |
| FHA Loan | 5.5% - 7.0% | 3.5% | 580 | 43% - 56.9% |
| VA Loan | 5.25% - 6.75% | 0% | 580 | 41% |
| USDA Loan | 5.0% - 6.5% | 0% | 640 | 41% |
| Jumbo Loan | 6.5% - 8.0% | 10% - 20% | 700 | 43% - 45% |
| ARM (5/1) | 5.5% - 7.0% | 3% - 20% | 620 | 43% - 50% |
Understanding Your Mortgage
What is a Mortgage?
Definition: A mortgage is a loan used to purchase real estate, where the property itself serves as collateral. You borrow money from a lender (bank, credit union, mortgage company) and agree to repay it with interest over a set period, typically 15 or 30 years.
Key Components: Principal (amount borrowed), Interest (cost of borrowing), Term (repayment period), Amortization (payment schedule), Escrow (account for taxes/insurance), PMI (insurance if down payment < 20%).
Types of Mortgage Payments
P&I (Principal & Interest): Core payment that pays down loan and covers interest. Calculated using amortization formula: M = P[r(1+r)^n]/[(1+r)^n-1]. This stays constant for fixed-rate loans.
Taxes & Insurance: Property taxes and homeowners insurance are typically escrowed - included in monthly payment and held by lender until due. Can change annually based on property value and insurance rates.
PMI (Private Mortgage Insurance): Required if down payment < 20%. Protects lender if you default. Typically 0.5-1% of loan amount annually. Can be removed when equity reaches 20%.
HOA Fees: If property is in homeowners association, monthly dues for maintenance, amenities, etc. Not included in mortgage payment but part of housing cost.
The Amortization Schedule
Year 1: Mostly interest. Example: $280,000 at 6.5% for 30 years. First payment: $1,770 total. Interest: $1,517 (86%), Principal: $253 (14%).
Year 15: Roughly equal split. Payment 180: Interest: $786, Principal: $984 (55% principal). Balance: $181,615.
Year 30: Mostly principal. Final payment: Interest: $8, Principal: $1,762 (99% principal).
Total Cost: $280,000 loan at 6.5% for 30 years: $637,433 total ($280,000 principal + $357,433 interest). You pay more in interest than you borrowed!
Down Payment Impact
20% Down: No PMI required. Lower monthly payment. Better interest rate often. More equity immediately.
10% Down: PMI required (≈0.5-1%). Higher monthly payment. Still get conventional loan.
3.5% Down (FHA): PMI required for life of loan (MIP). Higher monthly payment. Lower credit score requirements.
0% Down (VA/USDA): No down payment. VA: for veterans, no PMI. USDA: rural areas, income limits.
Debt-to-Income Ratio (DTI)
Calculation: DTI = (Total monthly debt payments) ÷ (Gross monthly income). Mortgage lenders typically want ≤43% DTI, sometimes up to 50% with strong credit.
Front-End Ratio: Housing costs only (PITI) ÷ Gross monthly income. Typically ≤28%.
Back-End Ratio: All debt (housing + car + credit cards + student loans) ÷ Gross monthly income. Typically ≤36-43%.
Example: $7,500 monthly income. Max housing payment at 28% = $2,100. Max total debt at 43% = $3,225.
Mortgage Loan Types Comparison
| Feature | 30-Year Fixed | 15-Year Fixed | FHA Loan | VA Loan | ARM (5/1) |
|---|---|---|---|---|---|
| Interest Rate | Higher (6.0-7.5%) | Lower (5.5-7.0%) | Competitive (5.5-7.0%) | Lowest (5.25-6.75%) | Low initial (5.5-7.0%) |
| Monthly Payment | Lowest | Highest | Moderate | Low (no PMI) | Low initially |
| Total Interest Paid | Highest | Lowest | High | Low | Depends on rate adjustments |
| Down Payment | 3-20% | 3-20% | 3.5% minimum | 0% | 3-20% |
| PMI/MIP | If <20% down | If <20% down | Always (life of loan) | No PMI | If <20% down |
| Credit Score | 620+ | 620+ | 580+ | 580+ (Veterans) | 620+ |
| Best For | First-time buyers, long-term owners | High income, fast equity build | Lower credit, first-time buyers | Veterans, military | Short-term owners, expect rates to drop |
Fixed-Rate Mortgages (FRM)
Pros: Payment never changes. Predictable budgeting. Protected from rate increases. Peace of mind.
Cons: Higher initial rate than ARM. Can't benefit from rate decreases without refinancing. Higher total interest than shorter terms.
When to Choose: Planning to stay 7+ years. Want payment certainty. Risk-averse. Rates are historically low.
Adjustable-Rate Mortgages (ARM)
Structure: 5/1 ARM = fixed for 5 years, adjusts annually after. 7/1 ARM = fixed for 7 years. Caps limit increases (e.g., 2% per adjustment, 5% lifetime).
Pros: Lower initial rate/payment. Could benefit from falling rates. Good for short-term ownership.
Cons: Payment can increase significantly. Risk of payment shock. Harder to budget long-term.
When to Choose: Planning to sell/refinance before adjustment. Expect rates to fall. Can handle worst-case payment.
Government-Backed Loans
FHA: Federal Housing Administration. Low down payment (3.5%). Lower credit requirements. Mortgage Insurance Premiums (MIP) - upfront + annual.
VA: Veterans Affairs. 0% down for eligible veterans. No PMI. Funding fee (can be rolled into loan). Best rates.
USDA: Rural Development. 0% down in eligible rural areas. Income limits. Guarantee fee.
When to Refinance Your Mortgage
The Refinance Rule of Thumb
1% Rule: Refinance if you can lower rate by 1% or more. Example: 7.5% → 6.5% on $250,000 saves $167/month.
Break-Even Point: Months to recoup closing costs = Closing Costs ÷ Monthly Savings. If break-even < 24 months, usually worth it.
Example: $5,000 closing costs ÷ $167 monthly savings = 30 months break-even. If staying > 2.5 years, refinance makes sense.
Refinance Strategies
Rate-and-Term Refinance: Lower rate and/or change term. No cash out. Most common type.
Cash-Out Refinance: Take equity out as cash. Higher loan amount. Use for home improvements, debt consolidation, etc.
Shorten Term: 30-year → 15-year. Higher payment but saves huge interest. Builds equity faster.
Remove PMI: Refinance when equity reaches 20% to eliminate PMI.
Refinance Costs
- Application Fee: $75-$300
- Origination Fee: 0.5-1% of loan
- Appraisal: $300-$500
- Credit Report: $30-$50
- Title Search/Insurance: $400-$900
- Recording Fees: $50-$250
- Attorney Fees: $500-$1,000
- Points: Optional (1 point = 1% of loan to buy down rate)
When NOT to Refinance
- Planning to move soon (break-even not reached)
- Credit score dropped significantly
- Home value decreased (may not qualify)
- Current loan has prepayment penalty
- Retiring soon (extending debt into retirement)
- Rates are rising (waiting might get worse)
Frequently Asked Questions
How much house can I afford?
General rule: House price ≤ 2.5-3× annual income. Monthly payment ≤ 28% of gross monthly income. Total debt payments ≤ 36-43% of gross income. Example: $75,000 income = $187,500-$225,000 house. Use affordability calculator for personalized estimate.
Should I pay PMI or put 20% down?
If you have 20%: Definitely put it down - no PMI, lower rate often, lower payment, immediate equity. If not: PMI costs 0.5-1% of loan annually. On $300,000 loan: $1,500-$3,000/year ($125-$250/month). Could be worth it to buy sooner if prices are rising faster than PMI cost.
15-year vs 30-year mortgage?
30-year: Lower payment, more flexibility, can invest difference, qualify for more house, but pay much more interest. 15-year: Higher payment, build equity faster, pay far less interest, forced savings, typically lower rate. Choose 15-year if payment ≤ 25% of income. Otherwise 30-year with extra payments.
How much do extra payments save?
Significant! $100 extra/month on $300,000 at 6.5% for 30 years saves $64,000 interest and pays off 5 years early. $200 extra saves $107,000 and 8 years. Even one extra payment/year saves big. Extra payments go directly to principal, reducing future interest.
What's included in closing costs?
Typically 2-5% of loan amount. Includes: Origination fees, appraisal, title search/insurance, credit report, recording fees, prepaid items (taxes, insurance, interest), points (optional). On $300,000 loan: $6,000-$15,000. Can sometimes be rolled into loan or paid by seller.
Fixed vs adjustable rate mortgage?
Fixed: Payment never changes, predictable, protected from rate increases, good for long-term owners. Adjustable (ARM): Lower initial rate, payment can increase, riskier, good if selling before adjustment (5-7 years). In rising rate environment, fixed is safer.
How does credit score affect mortgage?
Big impact! 760+ score gets best rates. 700-759: good rates. 620-699: higher rates, may need larger down payment. Below 620: hard to qualify, need FHA. Difference between 620 and 760 score can be 1-2% in rate = $200-400/month on $300,000 loan.
Should I pay points to lower rate?
1 point = 1% of loan to buy rate down 0.25% typically. Break-even = Points cost ÷ Monthly savings. If staying past break-even, pays off. Example: $3,000 points save $50/month = 60 month break-even. If staying 5+ years, worth it.
Mortgage Tips & Strategies
- Get pre-approved before house hunting - shows sellers you're serious
- Shop multiple lenders - rates/fees vary significantly
- Check credit reports 6 months before applying - fix errors
- Don't open new credit during mortgage process - can affect approval
- Consider biweekly payments - 26 half-payments = 13 full payments/year
- Make one extra payment/year - cuts 30-year loan to 23 years
- Round up payments - $1,567 → $1,600 adds principal each month
- Refinance strategically - 1% lower rate, break-even < 24 months
- Remove PMI when eligible - at 20% equity, request cancellation
- Consider property taxes - factor into total housing cost
- Budget for maintenance - 1-2% of home value annually
- Understand escrow - taxes/insurance included in payment
- Read Loan Estimate - compare all lender offers
- Review Closing Disclosure - ensure it matches Loan Estimate
- Keep records - mortgage statements, payment history, tax documents
Common Mortgage Terms
- Amortization: Process of paying off loan through scheduled payments
- APR (Annual Percentage Rate): Total cost including interest + fees
- Closing Costs: Fees paid at loan closing (2-5% of loan)
- DTI (Debt-to-Income): Total debt payments ÷ gross monthly income
- Equity: Home value minus mortgage balance
- Escrow: Account holding tax/insurance payments
- LTV (Loan-to-Value): Loan amount ÷ property value
- PMI (Private Mortgage Insurance): Insurance required if LTV > 80%
- PITI: Principal, Interest, Taxes, Insurance (total monthly payment)
- Points: Fees paid to lower interest rate (1 point = 1% of loan)
- Pre-approval: Lender's commitment to loan up to certain amount
- Prepayment Penalty: Fee for paying off loan early (rare today)
- Rate Lock: Guaranteed interest rate for specified period
- Underwriting: Lender's evaluation of loan risk