Mortgage interest calculator
Last updated: January 1
Buying a home is an exciting time but mortgages, interest rates and understanding what your costs are can be difficult. This mortgage interest calculator can help you estimate your monthly mortgage payment if you have an interest-only mortgage. To get an estimate and breakdown of your interest-only mortgage, just fill out some basic information about the purchase price, down payment, term, interest-only period, and interest rate.
An interest-only mortgage is a loan in which you pay only interest payments for a specified period at the beginning of the loan agreement. After that, borrowers may refinance their loan or pay a higher monthly payment until the loan and interest is repaid.
This mortgage interest calculator shows monthly payments both during and after the interest-only period and assumes that the interest-only period has a fixed rate.
Mortgage interest calculator terms you need to know
Use the definitions in this section to make sure that you understand what information you’re being asked for and why.
Purchase Price
The purchase price refers to the value or price of the asset that you are interested in taking a mortgage out on.
Down payment
A down payment on a house is an amount of money which is some percentage of the purchase price of the property. The more you put down, the less you’ll have to pay each month.
Loan program
Loan programs for a mortgage typically come in a 15-year or 30-year structure. This impacts the length of time that the borrower will take to repay the loan and the amount of interest that accrues over that period of time. A 15-year mortgages have higher monthly payments but typically lower interest rates than 30-year mortgages.
Interest rate
The interest rate is the rate at which interest grows on your loan. This is typically expressed as a yearly rate. A 4% interest rate mortgage, for example, would grow 0.25% interest over the course of 12 months.
Property tax
Property tax is a tax applied to the value of a property. This tax is implemented by a local government and is paid for by the property owner.
Homeowners insurance
Homeowners insurance typically covers theft, fire and smoke damage, damage caused by hail, falling objects, frozen pipes and water damage from plumbing.
HOA dues
Homeowner Associations (HOAs) are groups of private homeowners that create and enforce rules for residents, according to Freddie Mac. HOA dues are generally fees paid by residents to help with necessary maintenance or repairs in common areas.
How does mortgage interest work?
In short, a mortgage interest is a percentage of your loan. Most mortgages use simple interest, which means that borrowers will pay interest that is calculated on the principal amount of the loan, according to Quicken Loans. The formula for simple interest is straightforward:
Simple Interest = Principal x Interest Rate x Loan term in years
Mortgage interest FAQs
Many homeowners refinance for better rates. You may also be able to shorten the loan term and pay it off faster, according to Bankrate.
Yes. Certain qualifying homeowners may be able to deduct interest on a loan for a primary or second home, according to Bankrate.com. Note that there is a limit to the amount you can deduct from your taxes.
If a borrower would like to pay off their mortgage faster, they can make payments towards the principal of the home, says U.S. News. This lowers the amount of time the borrower will need to pay off the loan and subsequently lower the interest that accrues on that loan over time. Another option is making biweekly payments to split the time in half.
Though these sound good, there are reasons a borrower may not want to make additional payments, such as having extra emergency funds.
Taking out a mortgage on a new home can be overwhelming at first, but with a bit of effort and the assistance of tools, it doesn’t need to be difficult to estimate what a mortgage will cost you each month. Also know that many lenders require proof of homeowners insurance before funding your mortgage or refinancing. Get a home insurance quote today.