You’ll need to provide a few numbers to get the most accurate estimates:

• Home price: How much you’ll pay for your new home.
• Down payment: How much you’re paying upfront toward the cost of the home. We have it set to 20% of the home’s price as a default, because anything less might mean paying additional costs in private mortgage insurance (PMI).
• Loan term: How long you’ll be paying off your loan. A 30-year mortgage is common (and is the default here), but other terms are also available.
• APR: This is the financing cost of the loan that you’ll pay over time with each monthly payment, expressed as a percentage (annual percentage rate, to be specific). 
• Property taxes: How much you’ll owe the government in property taxes. Our calculator’s default is on the high end of what you might pay, but you can get a more accurate estimate by finding out the specific rate for your potential property. 
• Homeowners insurance: Lenders require that you purchase homeowners insurance, and we have it set to the typical cost. Again, you can get a better estimate by entering a more accurate number for your situation, if you know it. (It’s worth getting a couple quotes.)
• HOA fees: If your home is a part of a homeowners association (HOA), you may have to pay an additional monthly fee. 

Once you’ve provided these numbers, you’ll get a few numbers in return:

• Mortgage size: This is the total amount you’re financing, including the purchase price of the home (minus any down payment) and sometimes closing costs or other fees. 
• Mortgage interest: This is how much it’ll cost you over time to borrow this amount of money. In other words, this is how much the lender will charge as payment for giving you the mortgage. 
• Total mortgage paid: This is how much you’ll pay back to the lender in total (the amount you borrowed plus the interest that will accumulate). 
• Estimated monthly payment: This is how much you’ll pay to your lender each month. 

What Costs Are Included in a Monthly Mortgage Payment? 

Your lender will split your monthly payment into three separate elements:

• Principal: This portion goes toward paying down your mortgage balance—the original amount you borrowed. 
• Interest: This portion goes into the lender’s pocket. It’s their fee for lending you the money. 
• Escrow: This goes into a “holding fund” (an escrow account) that your lender or mortgage servicer uses to pay your property taxes and homeowners insurance. They use this holding fund to make sure these crucial bills get paid. Once your mortgage is paid off, you’ll have to pay your property taxes and homeowners insurance on your own. 

The above costs are included in every person’s monthly mortgage payment. But depending on your situation, you may also need to budget for these fees:

• PMI: If you make a down payment of less than 20% with a conventional mortgage, you’ll need to pay an additional payment for private mortgage insurance. Certain other loans, like FHA or USDA loans, also require a similar monthly payment (mortgage insurance premium, or MIP) regardless of the size of your down payment. These costs will usually be added to your monthly mortgage payment.
• HOA fees: As noted above, if your new home is within a homeowners association (HOA), condominium, or co-op, you’ll need to pay its fees either monthly or quarterly. Often, this cost won’t be included in your mortgage payment, and you’ll need to pay it on your own. 

How Can I Calculate My Monthly Mortgage Payment?

The easiest way to calculate your monthly payment is to use a mortgage calculator like ours. But if you’d like to do it by hand to check the math, here’s the formula for the principal and interest portion of your monthly payment:

M = P[i(1+i)ⁿ]/[(1+i)ⁿ-1]

Where

M = Monthly mortgage payment (principal plus interest)

P = Principal (i.e., the amount of the loan)

i = Your monthly interest rate (Your lender likely lists it as an annual percentage rate (APR), so to find the monthly interest rate, divide the APR by 12.)

n = How many payments you’ll make over the life of the loan (For a 30-year mortgage, that’s 360 payments: 30 years x 12 months per year.)

From here, you can find out your total monthly payment by adding in any other fees, including the monthly payment amount for taxes and insurance (find their annual costs and divide by 12), HOA or condo fees, and/or PMI. 

What Is the Average Interest Rate on a Mortgage?

The average interest rate on a 30-year fixed-rate mortgage was 2.67% APR on Dec. 17, 2020. That’s the lowest average rate since at least 1971, the Federal Reserve’s earliest published rate. Mortgage rates have been falling more or less steadily since 1981, when average mortgage rates topped out at over 18% APR. 

How Much House Can I Afford?

Asking yourself this question involves thinking about more than just what you can pay each month based on your income. 

If you’re not careful in your planning, you could easily find yourself in a situation where your monthly payments eat up most of your income. When you’re “house poor,” it’s a lot harder to make progress toward your other financial goals or afford your home’s upkeep. 

Here’s what we recommend.

Before you start looking at real estate listings, sit down and make a detailed monthly budget to identify a reasonable number for your total housing-related costs. Remember to include any other savings goals, such as retirement or your kid’s education. Many people recommend keeping housing expenses to 30% or less of your income. 

Next, figure out how much home maintenance and repairs might cost you. These costs won’t be included in your monthly payment, but it’s a good idea to set a certain amount aside each month in a high-yield savings account. That way, you’ll be able to afford repairs and even upgrades when they’re needed. One common recommendation—the 1% rule—advises setting aside 1% of the home’s value for annual maintenance and repairs. For a $300,000 home, that’s $3,000, or $250 per month.  

Finally, deduct the monthly maintenance amount from the amount you budgeted for housing costs. The amount left over is what you can reasonably afford to pay as a monthly mortgage payment.  

How Can a Mortgage Calculator Help Me?

Knowing how much you can reasonably afford to pay toward your mortgage each month is only one part of the financial picture. 

By using a calculator, you can play around with different variables to see what effect each one has on both your monthly payment and how much interest you pay over time. The goal is to minimize the total amount of interest you’ll pay over the life of the loan, while keeping the mortgage payment at an amount you can comfortably afford each month. 

For example, how much does a 0.05 percentage-point change in mortgage interest rates affect your monthly payment? What about the total amount of interest you’ll pay? Can you fit the monthly payments for a 15-year mortgage into your budget, which will let you own your home outright in half the original time frame?

How Can I Choose the Best Mortgage?

Your mortgage rate has a big effect on how much you’ll pay over time for the loan. Some lenders will offer lower rates than others, so it can pay off big-time to shop around with different mortgage lenders. 

For example, the difference between 4.5% APR and 3.5% APR on a 30-year, $500,000 mortgage is a whopping $103,753 in interest. Even small changes in interest rates add up to a lot of money over the course of 30 years.  

Some people prefer to work with certain lenders, such as credit unions or banks. However, for most people, the main consideration is how low your interest rate will be. Remember, it’s common for lenders to sell your loan to a different lender or at least assign you to a mortgage servicer. This means that even if you choose a particular lender, you may wind up working with another company at the end of the day.