Calculating Monthly Payments

You already know your mortgage rate is important — a higher rate means a higher total amount paid over the course of the loan — but that same mortgage rate can really impact your monthly payment, too.

That makes knowing your monthly payment amount all the more important. Take a look.

Calculating Basic Variables

When you’re calculating your monthly payments, you need a minimum of three figures to get started:
  • Sale price
  • Loan amount (Or down payment)
  • Interest rate (Not the same as APR)
The sale price will be the total price of the home. If you’re shopping online, use the list price. If you’re considering making an offer, use that figure.

Next, the payment calculator needs to know how much of that value is going to be financed through a lender. Some ask for the loan amount, others ask for the dollar amount or percentage of your down payment.

The third piece of the puzzle is your hypothetical loan’s mortgage interest rate.

Important: Don’t mix up APRs with interest rates. Since the add-ons for APR offers can differ from lender to lender, do an apples to apples comparison with just interest rates.

Ready? Hit enter and take a look at that number.

That’s your basic monthly mortgage payment — principal plus interest — for your hypothetical loan.

How Variables Change Your Payment

Now that you’ve got a baseline monthly payment estimate, feel free to start playing with these variables. Notice how it affects that monthly payment.

A couple obvious observations:

  • A higher down payment (or lower loan amount) means a lower monthly payment.
  • A lower interest rate — even by a few fractions of a point — also means a lower monthly payment.
What’s more interesting, however, are these truths that seem counterintuitive:
  • A higher sale price does not necessarily equal a higher monthly payment.
  • A higher loan amount also does not necessarily equal a higher monthly payment.
That’s where interest rates really make themselves felt. Check out these two examples:
  • Let’s say you find a house you like that’s $350,000, you want to put 20% down (for a loan of $280,000), and can snag a great rate of 3.75%. Your monthly payment would be $1,297.
  • But let’s say you don’t make the jump because the price seemed too high. Later, you find an even better house that’s only $300,000, you want to put 20% down (for a loan of $240,000), but now rates have shot up and you will have to settle for 5.5%. Your monthly payment would be $1,363.
Cheaper house, lower loan principal, monthly payment that’s $66 higher. Over 30 years, that does add up. So here’s another truth to consider:
  • A higher interest rate can mean a higher monthly payment, even on a cheaper house.

Accounting for Other Variables

The bulk of your monthly payment is going to be that principal and interest you’ve just calculated. But don’t forget about other fees that typically get lumped in with your mortgage payment:
  • Property taxes
  • Homeowners insurance
  • Private mortgage insurance (When your equity is below 20%)
Plan on living in a neighborhood with a homeowners association? Add in your HOA fees, and while you’re at it, you may want to start a maintenance fund. Not all these costs will be part of your all-in-one mortgage payment, but you’ll still have to cover them.

Whatever home or loan you end up choosing, make sure you’re comfortable with that monthly payment — you’ll be making it for some time.