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How to use a mortgage calculator

Whether you're thinking about buying your first home or you're ready to refinance your current house, a mortgage calculator can help you understand your monthly payment. It's important to understand how your interest rate, down payment, property location, term and other factors can affect your mortgage payment. Find out how to use a home loan calculator and see how this tool can make calculating your estimated mortgage payment easier.

What is a mortgage calculator?

A mortgage or home loan calculator is a digital tool that estimates your monthly payment and the terms of your mortgage. These free tools offer personalized loan recommendations that may include things like:

  • Monthly mortgage payments, including a breakdown of the principal and interest, property tax, homeowners insurance, homeowners association (HOA) fees and private mortgage insurance (PMI)
  • Length of mortgage in years
  • Fixed or adjustable interest rate
  • Interest rate and annual percentage rate (APR)
  • Closing costs, which may include attorney or lender fees, title insurance and other expenses

To estimate your monthly mortgage payment, mortgage calculators require user input. For example, you might need to provide:

  • Price of the home you plan to buy
  • Down payment percentage or amount
  • Property location and type
  • Monthly taxes, insurance and HOA fees
  • Your credit score and other personal information

Based on your input, a mortgage calculator provides home loan options and estimates. These calculators are helpful when you want to see estimates for different types of mortgages you might qualify for, or if you want to see how different loan terms would affect your monthly payments.

If you're curious about how much you could reasonably afford, use an affordability calculator. This type of calculator is helpful if you just started the homebuying or refinance process and want to find out how your income, monthly expenses, down payment, interest rate, loan term and other factors could impact your monthly payment.

How to use a mortgage calculator

To use a mortgage calculator, collect the information listed above. Then, follow the 12 steps below to estimate your monthly mortgage payment and review home loan options.

1. Loan type

First, choose the type of home loan you want so the calculator displays the right fields. Options include:

  • Home purchase: choose this option if you're purchasing a house, co-op or condo.
  • Refinance: If you want to replace your current mortgage with a new home loan, choose this option.
  • Cash-out refinance: Pick this option when you want to access the equity in your home.

Interest rates and mortgage terms tend to be similar for home purchases, mortgage refinances and cash-out refinances. However, most lenders offer the best interest rates only if your loan-to-value ratio (LTV) is 80% or lower. Depending on the type of home loan you want, the home value, mortgage balance, down payment and cash amount may factor into your LTV.

2. Home price or current property value

Next, enter the price of the home, which you can get from the property listing or from the most recent appraisal.  You can also use a home value estimator if you want to calculate the market value of any home you'd like to buy or refinance.

3. Down payment or mortgage balance

If you're buying a home, enter the down payment you plan to make. You can either enter the dollar amount or the percentage of the home price. If you enter the amount, the percentage automatically calculates, and vice versa. A higher down payment may qualify you for a lower interest rate. If your down payment equals less than 20% of the home price, you may have to pay private mortgage insurance (PMI). In most cases, PMI equals 1% of your mortgage balance.

If you're refinancing your home, enter the current mortgage balance. You can get this number from your most recent loan statement. Ideally, your balance should be less than 80% of your home value to qualify for the best interest rate. If you're applying for a cash-out refinance, enter the additional amount you want to borrow, too.

4. Property ZIP code

Next, enter the ZIP code for the property. If the ZIP code includes more than one county, the home loan calculator will prompt you to choose the correct one. To confirm the county, check the property listing. The mortgage calculator requires the ZIP code and the county in order to identify the right property tax rates.

5. Credit score

If you don't know your current credit score, get a copy of your credit report. Then choose the dropdown menu and choose the range that includes your credit score.

Your credit score is one factor used to determine which loan products you might qualify for. Most lenders offer you options based on your credit score and other factors like your monthly income and your debts. If you have a credit score of 740 or above, you may qualify for a lower interest rate.

6. Home loan goals

So you can see the right home loan options for your needs, choose the factor that matters most to you. Consider these options:

  • Low interest: Offers the lowest possible interest rate, no matter the lifespan of the loan.
  • Steady monthly payment: Maintains the same interest rate for the length of the loan for a more predictable monthly payment.
  • Short-term ownership: Allows you to lock in a lower interest rate for the first few years of your mortgage before transitioning to an adjustable rate.
  • Lowest monthly payment: Offers the smallest possible payment, which often requires a longer loan term.

7. Property type

To get more fine-tuned mortgage options, choose the “Advanced” link to answer a few additional questions. Then choose the type of property you plan to finance. Choices include:

  • Single-family home
  • Condominium
  • Co-op
  • Two-family home
  • Three-family home
  • Four-family home

Mortgages for certain property types generally have different interest rate ranges. For example, single-family homes often have lower interest rates than condos. Not all lenders offer mortgages for condominiums, so there’s less competition, and mortgages for condominiums are somewhat riskier than for single-family homes.

8. How you plan to use the property

Next, choose whether you plan to use the home as your primary residence, a second or vacation home or a rental or investment property. Lenders may offer different interest rates based on your intended use. For example, interest rates for investment properties and vacation homes are often higher than those for primary residences.

9. Personal information

Choose the circles to indicate whether you're a United States citizen or a first-time homebuyer. If both, you could qualify for certain home loan products. For example, you might be eligible for a loan from the Federal Housing Administration (FHA). Since they typically offer low down payment options and low closing costs, FHA loans are often more affordable.

10. Property taxes

Although annual property taxes don’t change how much you borrow, they do impact your mortgage payment. Most lenders include one-twelfth of your annual property tax in each monthly mortgage payment. They then pay the tax to the county on your behalf.

11. Homeowners insurance

Next, enter the homeowners insurance premium you'll need to pay each month. To get this number, you can call your insurance company. Your insurance provider may also offer a calculator on their website.

Like property tax, homeowners insurance doesn't affect your loan amount. However, most lenders include it in your mortgage payment, then pay the premium for you.

12. HOA fees

Finally, enter the monthly HOA fees. You can find this information on the property listing, which should indicate if the house belongs to an HOA and any applicable fees. If the house doesn't have an HOA, leave this section blank.

HOA fees are not included in your mortgage payment, but they affect your overall monthly housing cost.

Calculate your mortgage payments

Once you've entered all the information in the mortgage calculator, choose the “Get my options” button to see your options. You can review the top recommendation and choose the other suggestions to see how your monthly payment would change with a different loan term or interest rate. To move forward with applying for one of these loan options, choose the “Start online” button to get prequalified for a mortgage.

When you're getting ready to buy or refinance a home, it's important to make a smart financial move. With a host of different mortgage calculators at your fingertips, you can quickly assess your loan options and your monthly costs so you can make an informed decision.