The payment, and everything around it
This calculator produces the monthly figure a lender will quote, then adds the costs that arrive with it. The two numbers differ by more than most buyers expect, and the second is the one your budget has to absorb.
The formula
P is the amount borrowed, i the monthly rate, n the number of payments. Principal and interest only — everything else is added on top.
Worked example: $300,000 at 6.5% over 30 years
- Principal and interest: $1,896.20
- Total interest over the term: $382,633
- Total paid: $682,633
The interest exceeds the amount borrowed by 28%. That is what thirty years does, and it is the strongest argument for looking at the term before looking at the rate.
What the lender collects on top
| Component | Annual | Monthly |
|---|---|---|
| Principal and interest | $22,754 | $1,896 |
| Property tax | $3,600 | $300 |
| Home insurance | $1,200 | $100 |
| Total | $27,554 | $2,296 |
The real monthly outlay is 21% higher than the mortgage payment. Add mortgage insurance where the deposit is under 20%, and any association fee, and the gap widens further.
Where each payment goes
In month one, $1,625 of the $1,896 is interest and $271 repays the loan. The crossover — the first payment where principal exceeds interest — arrives in month 218, more than eighteen years in.
After five years you have paid $113,772 and reduced the balance by about $18,700. Anyone expecting to sell after five years and recover their deposit should check that figure against likely transaction costs first.
What an extra payment does
Paying an additional $200 a month reduces the term from 360 months to about 300 and cuts total interest from $382,633 to roughly $305,000. That is $77,000 saved for $200 a month, because every extra dollar of principal removes all the interest it would otherwise have generated.
The effect is strongly front-loaded: the same $200 started in year fifteen saves a fraction of that.
Rate against term
Half a point off the rate saves $99 a month and $35,700 over the term. Moving from 30 years to 15 raises the payment to $2,613 but cuts total interest to $170,300 — a saving of $212,000.
The term is the larger lever and the harder one, because it demands more cash every month rather than better negotiation.
What this calculator leaves out
Closing costs, typically 2 to 5% of the price, and any discount points. It also assumes a fixed rate for the whole term; on an adjustable mortgage the schedule is rebuilt at every reset.
What the lender tests before approving
Two ratios decide the application. The front-end ratio compares housing cost to gross income and is commonly capped near 28%; the back-end ratio adds every other debt payment and is capped near 36 to 43%.
At the $2,296 total above, the 28% front-end rule implies gross income of about $98,400. Existing car and student loan payments then have to fit under the back-end cap alongside it, which is why two applicants with identical salaries can get different answers.
Related calculators
- Affordability calculator — the maximum price your income supports
- Extra payments calculator — the saving in detail
- Refinance break-even — whether a new rate repays its costs