Calculate your monthly payments, compare scenarios, and understand the true cost of your mortgage
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Your monthly mortgage payment consists of principalThe amount that goes toward paying down your loan balance and interestThe cost of borrowing money, calculated as a percentage of your remaining balance. Early in your loan, most of your payment goes toward interest. Over time, more goes toward principal as your balance decreases.
The loan termThe length of time you have to repay the loan. Common terms are 15, 20, 25, or 30 years significantly impacts your total cost. Shorter terms mean higher monthly payments but much less interest paid overall. A 15-year loan typically saves you over $100,000 in interest compared to a 30-year loan.
Your base payment includes principal and interest (P&I). However, most lenders also require escrow for property taxes, homeowner's insurance, and possibly PMI (private mortgage insurance) if you put down less than 20%. These additional costs can add $200-800+ to your monthly payment.
While 20% down avoids PMI, you don't always need it. FHA loans allow 3.5% down, and conventional loans can go as low as 3%. Consider your cash flow, emergency fund, and investment opportunities. Sometimes it's better to put less down and invest the difference.
It depends on your interest rate and other debts. If your rate is below 4%, you might invest extra money instead. If it's above 6%, paying extra could save significant interest. Always pay off higher-interest debt (credit cards) first.
You can refinance to get a lower rate, but consider closing costs (typically 2-3% of loan amount). A good rule: refinance if you can lower your rate by at least 0.5% and plan to stay in the home for several years.
Credit scores significantly impact rates. Excellent credit (740+) gets the best rates, while scores below 640 face higher rates or require FHA loans. A 100-point credit score difference can cost you $200+ monthly on a $400K loan.