Mortgage Calculator

Most people expect the payment to be principal and interest. On a typical loan it is not - and the difference is why the true cost of housing is higher than the headline figure suggests.

• Principal and interest - the part that pays down the loan and its charge. This is what the formula computes.
• Property taxes - collected monthly into an escrow account and paid once or twice a year by your lender.
• Homeowners insurance - also escrowed, and usually required for the life of the loan.
• Mortgage insurance - required when the down payment is below 20%. On conventional loans it can be removed once you reach sufficient equity; on FHA loans it usually stays for the life of the loan.
• HOA fees - not collected by the lender, but a real monthly obligation that affects what you can afford.

Taxes and insurance typically add 15-30% on top of principal and interest, and they rise over time even when your loan payment does not. A fixed-rate loan fixes the loan portion only.

Amortisation front-loads the interest. Because the charge each month is calculated on the remaining balance, and the balance is largest at the start, the first years of a long loan go mostly to the lender.

Total interest over the full 30 years is $382,632 - more than the amount borrowed. Over the first five years you will have paid about $111,000 and reduced the balance by only about $20,600.

Note. This is not a flaw in the calculation. It is arithmetic: interest is charged on what you still owe, and you owe the most at the beginning.

1. Rate. The most powerful single variable. On $300,000 over 30 years, moving from 6.5% to 6.0% cuts the payment from $1,896.20 to $1,798.65 - $97.55 a month, or $35,118 over the term, on identical borrowing.
2. Term. Extending 15 years to 30 lowers the payment but raises total interest substantially. A 15-year loan at 6.25% has a higher monthly payment than a 30-year at 6.5%, but roughly half the total interest.
3. Down payment. Every dollar down reduces the amount borrowed - and below 20% it also triggers mortgage insurance, which is a cost with no equity benefit.

The payment falls by roughly $190 for each $30,000 of additional down payment. Whether that is the best use of $30,000 depends on what the money would earn elsewhere, and on whether the alternative return beats 6.5% after tax.

• Fixed rate - the payment is identical for the whole term. You pay for that certainty with a higher starting rate than the initial rate on an adjustable product.
• Adjustable (ARM) - starts lower, then reprices on a schedule tied to an index plus a margin. The initial discount is compensation for taking on rate risk later.
• Hybrid ARMs - fixed for an introductory period (commonly 5, 7 or 10 years), then adjustable. They suit owners who expect to sell or refinance before the adjustment begins, and are expensive for those who stay.
• Rate caps - limit how much the rate can move at each adjustment and over the life of the loan. Read both: a per-period cap without a lifetime cap still allows substantial drift.

Note. An ARM only wins if rates do not rise, or if you leave before they do. Model the payment at the worst case your cap allows, not at the teaser rate.

Because extra money reduces the balance, it removes future interest on that amount - and the effect compounds for the rest of the term.

Confirm your lender applies the excess to principal rather than to future payments. Some loans allow a curtailment; others quietly hold the overpayment as prepaid interest. Ask specifically how a payment above the minimum is applied before you start sending them.

This calculator shows the cost of owning. It does not show the cost of buying - which includes closing costs of 2-5% of the loan, moving, inspections, and the ongoing obligations a renter does not carry.

• Selling costs are the largest hidden item. At a combined 7-8% of the sale price, you need the property to appreciate by roughly that much simply to break even against renting.
• Opportunity cost. A down payment invested instead of tied up in equity earns whatever the market returns. That return is uncertain; the avoided mortgage interest is not.
• Equity is illiquid. Money in the house is not money you can spend without borrowing or selling.
• Advantages are real too: a fixed payment that inflates away, forced saving, potential appreciation, and control over the property.

The honest comparison is not "mortgage versus rent" but the total monthly cost of owning including taxes, insurance, maintenance (budget 1% of the home value a year), and the opportunity cost of the down payment - against the rent of an equivalent property, with both sides adjusted for how long you expect to stay.