How Much House Can You Afford? A Mortgage Calculator

How much house can you afford? Use this free mortgage calculator to find out!

Zack Sigel

Zack Sigel

Published June 7, 2019

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Use our mortgage calculator to determine your monthly mortgage payment. Enter your home value, your down payment, your interest rate (APR), and the loan term. The calculator displays the payment breakdown for each month of the term as well as the total cost of your mortgage.

Mortgage calculator

Click here to download a copy of this spreadsheet. This is an Excel mortgage calculator, but you can load it into Google Sheets if you don’t have Excel.

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How to use the mortgage calculator

On the mortgage calculator, the APR is prefilled for you. However, you can enter any interest rate you want. We picked a preset APR of 4.14% because it falls squarely within the average of 30-year, fixed-rate mortgage rates for 2019.

How interest rates affect your monthly payment

Every month, your mortgage payment goes in part toward the principal — the amount of the payment that chips away at the total loan balance — and in part toward the interest. Yet, although your interest rate may be 4.14%, that doesn’t mean you’ll only pay just 4.14% of the total mortgage balance. That’s because interest rates compound every month.

To see how compounding interest affects the total cost of your mortgage, we have to use a formula. You take your interest rate, divide it by 12 for the number of months in the year, and multiply it by the total remaining balance.

With a loan of $400,000 and an interest rate of 4.14%, you’d owe $1,380 per month in interest on a 30-year, fixed-rate mortgage. This is reflected in your first mortgage payment, but that’s not the whole story: you’ll owe less on your next payment, and even less after that. We’ll explain why below.

The Policygenius mortgage calculator will give you an estimated monthly mortgage payment for fixed-rate mortgages only. If you have an adjustable-rate mortgage, or ARM, your interest rates will periodically change.

Entering a down payment

On the mortgage calculator, you’ll see the option to enter a down payment. A higher down payment means paying less interest over time; you’re paying off a larger chunk of the mortgage balance before interest has even been assessed.

Setting the term

You can choose a loan term of between five and 30 years. A shorter term means paying less interest as a dollar amount, but you’ll have to pay a much higher premium, and it could make the home loan less affordable.

We preset the loan term to 30 years. Most mortgages have either 15-year or 30-year terms, but you can often choose any length of time as long as your lender allows it.

Reading the amortization schedule

By your second payment, you’ll see that the amount of interest you owe has gone down slightly. That’s because the other part of your payment, the principal, reduced the total overall mortgage balance, so you only owe interest on the lower amount.

While your mortgage payment remains the same through the life of the loan, gradually, more of the payment goes toward the principal and less toward the interest. This is called amortization.

Below the inputs on the calculator, you’ll see an amortization schedule. This will list all of the payments you need to make, month by month, and how your payment is split between principal and interest.

Beyond the calculator: other mortgage costs to consider

Certain costs of taking out a home loan are not reflected on the calculator. We’ll go into some of them here to help you more fully understand the costs of buying a home with a mortgage.

Closing costs

Closing costs are fees you pay when taking out a mortgage. These will vary from lender to lender, but typically they include:

Points: You may purchase discount points from your lender that reduce your interest rate over time. Points cost extra at closing, but could save you a lot of money if you plan to stay in your house for many years.

Home inspection fees: The amount you pay to a professional to confirm that your home is in its expected condition.

Property taxes: You’ll owe taxes at closing to cover the lender’s tax responsibility. Property taxes are set at the local and state level.

Title fees: A home’s title states who owns the property. In order for a sale of the home to be valid, the name on the title must be switched to the buyer’s. Title fees pay to search for the title and confirm that there are no tax liens or other judgments on the property. (To be extra certain, a title insurance policy will reimburse you for the home if the title search misses something that invalidates your right to the property.)

Homeowners insurance: Homeowners insurance is an integral part of buying a home. It protects both you and your lender, who has a stake in your home as a source of investment income. You may have to pay a year’s worth of homeowners insurance premiums at closing.

Escrow fees: Many of the closing costs will go into an escrow account to make sure the funding is available for future use. You may need to pay a fee to the escrow agent.

Loan origination fees: Loan origination fees pay for the cost of processing your mortgage.

Appraisal fees: An appraisal makes sure the home’s fair market value is accurate and ensuring that neither the buyer nor seller is getting a bad deal.

Private mortgage insurance (PMI)

If your down payment is less than 20%, you’ll need to pay private mortgage insurance, or PMI, for several years. Private mortgage insurance is not yet part of our calculator, so when entering a smaller down payment, make sure to account for those additional costs.

It may cost about 1% per month to pay for PMI on a conventional mortgage. For FHA loans, which are insured by the Federal Housing Administration, a similar fee applies, which is called the mortgage insurance premium (MIP).

You can typically cancel PMI when your home reaches 20% equity, an accounting of the value of your home versus the amount you’ve paid toward your mortgage. But on an FHA loan, you’ll need to pay the MIP for the lifetime of the loan, or until you refinance into a conventional mortgage.

Read more about the difference between FHA loans and conventional loans.

All about mortgages

A mortgage is the key to homeownership. When you’re ready to buy a home, the first step is figuring out how much house you can afford. Homes are expensive — for many people, it’s their most valuable asset — and a home loan is often the only way for someone to buy one.

You can get a mortgage from a bank, a credit union, or another type of lender. You can even take out a mortgage directly from the seller, which is sometimes called a wraparound mortgage.

When taking out a mortgage, you’ll want to consider not only the price of the home but also mortgage rates. You’ll be offered better mortgage rates if your credit is good and you have a lower debt-to-income ratio. You’ll get a good idea of what kinds of mortgages rates are available to you, as well as how much house you can afford, when you get preapproved.

Check out our guide to the mortgage process to learn more.

Paying off your mortgage

There are a couple of things you can do to reduce your monthly mortgage payment. One is to purchase discount points, which we explained above. You can also pay a larger down payment. Both of these options will reduce your interest over time. (If a parent or loved one is gifting you money to put toward the loan, make sure you present the seller with a gift letter.)

Although your monthly payments stay the same each month, you can whittle down your interest payments by making extra payments outside of your regularly scheduled ones. Extra payments go toward the principal only, reducing your balance as well as your interest.

But check with the mortgage lender first: some lenders charge a prepayment fee if you pay your mortgage off too soon.

If you don’t pay off your mortgage, the lender may begin foreclosure proceedings. When this happens, you’ll need to get caught up on delinquent payments fast, or you could lose your home. Your first warning may come in the form of a lis pendens, which is a notice of impending foreclosure action.

Types of mortgages

There are several types of mortgages, which may work better for different people in different financial situations. Some of the most common ones include:

Fixed-rate mortgages: With this type of home loan, interest accrues at a fixed rate throughout the lifetime of the loan.

Adjustable-rate mortgages: Also called ARMs, interest periodically adjusts during the term. The rate may start off low and remain fixed for a period of time — for example, a 5/1 ARM has a five-year fixed-rate period, after which the interest rate can be changed once per year. This type of mortgage is ideal for someone who plans to sell their home or pay off their mortgage within five years.

FHA loans: FHA loans are underwritten by the U.S. government. You’ll need to choose a home with a lower purchase price, because there are limits to the amount of mortgage you can take out with an FHA loan. You can also get an FHA construction loan, which will help finance improvements and repairs on your home.

Interest-only mortgages and balloon mortgages: These types of home loans let you delay putting large amounts of your payment toward the principal. This may save you money in the short term, but they could quickly become a problem if you’re not prepared for the large increase when principal payments begin. Read more about interest-only mortgages and balloon mortgages.

Reverse mortgages: With a reverse mortgage, you get to stay in your home, and your bank makes payments to you until they own the house outright. Seniors may choose this option if they don’t want to move, but still need a steady stream of income.

Refinancing your mortgage

To refinance your mortgage is to take out a new mortgage to pay off the old one. There are a couple of reasons to refinance your mortgage, including:

  • Interest rates have gone down, or your credit has improved, and you can refinance into a mortgage with lower rates
  • You want to get rid of the MIP on your FHA loan
  • You want to extend your loan term, spreading your loan term over a longer period of time and thus owing less each month
  • You want to reduce your loan term, so, for example, you refinance into from a 30-year mortgage into a 15-year mortgage, thus increasing your payments
  • You want to do a cash-out refinance, extracting some of your home’s equity as cash. The amount you borrow will be tacked onto your remaining mortgage balance and will have to be paid off along with the rest of the mortgage.

As with taking out an original mortgage, you’ll have to pay many of the same closing costs in a refi. For many people, this could make it too expensive with little benefit. If you want to get out of your mortgage and get more favorable terms on a new one, your best bet might be to wait until the real estate is strong

HELOCs and home equity loans

A home equity line of credit (HELOC) and a home equity loan are very similar, in that both access the equity on your home to provide you with funds that can be used for virtually anything. Most lenders

Home equity loans are often called second mortgages because you’re still using your house to secure the loan. If you don’t pay back your home equity loan, the lender may place a lien on your home.

With a HELOC, you’re getting a line of credit that can be used to make purchases, using your home as collateral. If you don’t pay back the expenses you made against the line of credit, then you could lose your home.

In both cases, the amount you can use for a HELOC or home equity loan is determined by your home’s loan-to-value ratio, which is the amount of the mortgage minus the amount you’ve paid back. Most lenders won’t extend a HELOC or home equity loan to you unless your loan-to-value ratio is less than 80%.

Read more about HELOCs and home equity loans.

Policygenius’ editorial content is not written by a certified financial planner or advisor. It’s intended for informational purposes only and should not be considered legal, financial, or investment advice. Consult a professional to learn what financial products are right for you.

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