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The Mortgage Calculator: A Time Machine for Your Mortgage Future

So you’re thinking about buying a home, and you want to get a mortgage to finance your purchase. First of all: congratulations. Buying a home is an exciting process, but one that can at times be daunting. There are a lot of numbers involved, some of them frighteningly large. For non-professionals, it can be hard to understand all of the options, not to mention all the lingo. This is where a free mortgage calculator can come in handy: it allows you, the homebuyer, to see exactly what your mortgage payments will look like on a monthly basis, and how your payments and debt will evolve over the course of the mortgage. Think of it as a sort of time machine, allowing you to peer into your future as a homeowner and look over your own shoulder as you examine your monthly mortgage statement.

Why should I use SmartAsset’s mortgage calculator?

Photo credit: © iStock/Aslan Alphan

For starters, our mortgage calculator is free and very easy to use. You provide a little bit of information about the house and mortgage you are considering, and voila! The home loan calculator spits out everything you need to know about your future payments. It can tell you, for example, what the monthly payment will be in year 7 of your mortgage term. It can tell you how much you will owe at the end of year 19. It can tell you at what point you will have more equity than debt. You get the idea.

Even if you aren’t the type of person who carefully budgets every monthly expenditure, a home mortgage calculator is perfect for getting a general idea about your future payments. Plus, there’s a pie chart!

The Basics: Target Home Price, Down Payment and Location

Ready to try our monthly mortgage calculator? Great! Let's do this. The first step is to provide a little background information about your prospective home and mortgage. These numbers can be adjusted later on, so don’t worry about getting them exactly right to start out. There are three blanks you’ll need to fill in: target home price, down payment and location.

Target home price is the price you will pay for your home, not including closing costs or any other fees. If you’ve already started searching for a home, you probably have some idea what you might pay. If not, check out our How much house can I afford? tool. For now, let’s use a home costing $200,000 as an example – this is approximately the median U.S. home price as of 2014.

The amount of your target home price not covered by your mortgage is the down payment. This is your up-front cash payment and it typically ranges from 3.5% to 20% of your home price. In our $200,000 example, a 20% down payment would be $40,000.

Your mortgage will pay for the remainder of your target home price - $160,000 in our example. That's your initial mortgage amount. You'll note that the down payment and the initial mortgage amount are directly linked: if one goes up, the other must go down.

Once you have this information entered, you’re ready to let our mortgage payment calculator do what it does. Take a look at the pie chart we promised.


SmartAsset’s mortgage calculator projects that monthly payments on a $200,000 home with a $160,000 30-year fixed-rate mortgage in Ann Arbor, Michigan will be $1,206 in year one.

How does my mortgage payment charge over time?

The mortgage calculator breaks your monthly payment into four separate categories: principal, interest, property tax, and homeowners insurance. These categories represent the four “slices” of your payment pie, and each of them will evolve over time. Before we get to that, however, it’s important to have a good understanding of each slice, so that you can understand why you are paying that particular amount and why it might change.

Let’s start with principal, the portion of each payment that goes toward paying down the balance of your loan. Every dollar you pay in principal is one less dollar you owe the bank. Paying principal feels good. In contrast, paying interest does not reduce your debt. Your interest payment is calculated as a percentage of your mortgage balance—the amount of the loan that you have not paid off. Together, principal and interest account for your mortgage payment. Over time the principal slice will grow and the interest slice will change—but we’ll get to that in a minute.

First, let’s talk about the other two slices of our pie, property tax and homeowners insurance. The real estate tax is generally a percentage of the value of your home, and is based on local property tax rates. Homeowners insurance varies in a number of ways, including the potential threats to your home from things like floods and hurricanes.

Now, are you ready for the fun part?

Our Mortgage Payment Calculator in Action

By adjusting the year on the mortgage loan calculator, you can watch how your payment evolves over the course of your mortgage’s term. It’s like traveling through time: as you move from year 1, to year 2, to year 3 and so on, the make-up of your payment changes—some of the pie pieces grow, and some shrink.

With SmartAsset’s mortgage calculator, you can see how your payments will change over time. In this example, the total payment grows because of home appreciation, which lifts property taxes over time.

Cool, right? And it gets even better. Do you notice how, as you move further along in your mortgage term, a greater portion of your monthly payment goes toward principal, and less toward interest? This is because with every single payment you make, your loan balance falls, so you have that much less debt on which to pay interest. This is called amortization. Over the length of your loan, as your mortgage balance falls, your equity grows—equity is the difference between the home value and the mortgage balance. Think of it as the portion of the house you own as opposed to what the mortgage lender owns. On day 1, when you’ve just been handed the keys and your house still has that new-house smell, your equity is equal to your down-payment—$40,000 in our earlier example.

The mortgage calculator also incorporates home appreciation into its calculations; this is the tendency of homes to gain value as time passes. The mortgage calculator assumes a home appreciation rate of 2%, but this is adjustable.

How to Play Around With Our Simple Mortgage Calculator

Can you play around with the inputs on our house payment calculator? Absolutely! The values you entered earlier for target home price, location and down payment are all adjustable. You can change your mortgage interest rate, the home appreciation rate and even the type of mortgage you are using: the standard is a 30-year fixed-rate, but options include 15-year fixed- and a number of adjustable-rate mortgages. (Learn more about which one of these is right for you here.)

So try messing around with all of these numbers on our mortgage estimator. See what happens to your monthly payment when your interest rate falls, or when you make a larger down payment. Try out a few different home prices with a few different mortgages. The possibilities are endless! SmartAsset gives you a mortgage calculator with taxes and PMI (Private Mortgage Insurance) included, so you can get a clear picture of your housing costs.

Can the mortgage calculator estimate mortgage payments if I pay extra each month?

I’m glad you asked. One of the advanced options on the mortgage calculator is prepayment. This allows you to add a bonus amount to your monthly payment that goes toward paying down your principal. The higher the prepayment amount, the sooner your mortgage balance (and mortgage payments) will go to zero.

Got the hang of calculating your mortgage payment using our tool? Great. Remember, a mortgage calculator is just one of many tools you can use to help you make a smart financial decision in the home-buying process. You can consult it at any point in the process, as many times as you want, and use it in conjunction with other resources.

America's Healthiest Housing Markets

With SmartAsset’s interactive Healthy Housing Markets map, you can locate the healthiest housing markets in your state and across the country. Search for the overall healthiest markets or look specifically at one of our four healthy-housing indicators: stability, risk, ease of sale and affordability. Hover over a county or state to get more information.

Least
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Rank City Average Years Living in Home Avg. Homes with Negative Equity Homes Decreasing in Value Avg. Days on Market Home Costs as % of Income

Methodology A healthy housing market is both stable and affordable; homeowners in a healthy market should be able to easily sell their homes, with a low risk of losing money over the long run. So, in order to find the healthiest housing markets in the country, we considered the following four factors: stability, affordability, fluidity and risk of loss.

We measured stability with two equally weighted indicators: the number of years people remain in their homes and the percentage of homeowners with negative equity (as homeowners with negative equity are more likely to go into foreclosure). To account for our second factor, risk, we used the percentage of homes that decreased in value. To determine housing market fluidity, we looked at data on the average time a for-sale home in each area spends on the market—the longer it takes to sell, the less fluid the market. Finally, we calculated affordability as the monthly cost of owning a home as a percentage of household income in each county and city.

Affordability accounted for 40% of the housing health index, while each of the other three factors accounted for 20%. When data on the above four factors was unavailable for cities, we excluded these from our final rankings of healthiest markets.

Sources: US Census Bureau 2015 American Community Survey, Zillow