Erin Bendig
Whether you’re buying your first house or your forever home, understanding your monthly mortgage payment is vital before you close. It’s often the largest recurring expense in your budget, and knowing what you’ll owe can help you make smarter financial decisions when purchasing a home.
And today’s rate environment adds another layer to consider. At its latest meeting, the Federal Open Market Committee cut the federal funds rate by a quarter point, its third reduction this year, bringing the benchmark range down to 3.50% to 3.75%. Lower short-term rates don’t directly set mortgage rates, but they signal easing financial conditions and can influence the broader interest-rate environment that shapes home loan costs.
With that in mind, we’ll walk you through how to figure out your mortgage payment — whether you’re running the numbers by hand or using our calculator to see how different loan amounts, rates, and terms affect your bottom line.
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How to use the mortgage calculator
Understandably, you may be struggling with determining just how much you’ll owe on your mortgage, as the mortgage payment calculation looks like this:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1].
However, with our mortgage calculator, you can forego all the complicated calculations and simply enter a few pieces of information.
First, you'll enter the overall price of your home, if you’re buying, or the current value of your home if you’re refinancing.
You’ll also include either the down payment (the cash you plan on paying upfront towards the home) or the amount of equity you have (the value of the home, minus what you owe on it).
After this, you’ll enter the term length of your loan. If refinancing, enter how many years are remaining on your current loan.
Typically, most mortgages are 30-year mortgages, but you can choose between several term lengths to decide which loan term is right for you. You can then compare how different interest rates will affect your monthly payment. Entering your annual household income and credit score will show you how much you'll be able to reasonably afford.
Using the mortgage calculator below can also help you determine how much to put down on your home. While it's recommended to put down 20% to get the best rates, it's not necessary, and you can play with this number to see how it affects your mortgage rate.
Saving on your mortgage rate
Lenders consider many factors when determining the interest rate on your mortgage, including down payment, loan term and the price of the property.
The biggest factor they take into consideration, however, is your credit score. Boosting your credit score could potentially save you thousands of dollars on your home mortgage.
The chart below, from MyFICO, shows how much you can expect to pay depending on where your credit score stands, based on a 30-year fixed mortgage of $400,000.
FICO Score | APR | Monthly Payment | Total Interest Paid |
|---|---|---|---|
760-850 | 6.53% | $2,535 | $512,737 |
700-759 | 6.82% | $2,612 | $540,212 |
680-699 | 6.97% | $2,653 | $555,040 |
660-679 | 7.04% | $2,672 | $561,906 |
640-659 | 7.17% | $2,707 | $574,628 |
620-639 | 7.33% | $2,751 | $590,259 |
Here are a few other tips, besides raising your credit score, that can help you score a low mortgage rate.
- Increase your down payment: The higher your down payment, the less principal and less interest you'll have to pay over the life of the loan. You'll likely need a 20% down payment to get the best rates.
- Shop around: Because different lenders offer different rates, it's important to get at least three quotes when shopping for a mortgage in order to take advantage of the lowest rates.
- Consider an adjustable-rate mortgage (ARM): An ARM could be a good option for you, especially if you plan on selling your home sometime in the future. These mortgages offer fixed interest rates that are often lower than those for traditional mortgages for a set number of years. With this tool, you can see how much your monthly payments will be during the fixed period of an ARM, as well as when the introductory period expires. Once the fixed period is over, your mortgage rate can go up or down based on the market.
Why running the numbers matters
With interest rates shifting and the Federal Reserve signaling potential cuts in the new year, it’s important to know where your monthly mortgage payment stands before you buy.
Using a mortgage calculator can help you compare different scenarios, from home prices to loan terms, so you can budget confidently and make the best decision for your financial future.
Curious about today's mortgage interest rates? Explore and compare some of today's top offers with the tool below, powered by Bankrate:
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