US Mortgage Calculator

How US mortgage payments work

A US fixed-rate mortgage payment covers four things — often called PITI: Principal, Interest, property Taxes, and Insurance. If your down payment is under 20%, lenders also add PMI (private mortgage insurance).

Monthly compounding

Unlike Canada (which compounds semi-annually), US mortgages compound monthly — the annual rate is simply divided by 12. Over a 30-year loan, interest is the largest single cost, often exceeding the home's price.

PMI — private mortgage insurance

Put down less than 20% and you'll pay PMI, roughly 0.4%–1% of the loan per year, until you build 20% equity. Putting 20% down avoids it entirely.

The rest of the payment: taxes, insurance and HOA

Principal and interest is only part of what leaves your account each month. Lenders think in terms of PITI — principal, interest, taxes and insurance — and for good reason. Property tax varies by more than an order of magnitude across the country, from well under 0.5% of assessed value in some states to over 2% in others. On a $400,000 home, that is a difference of roughly $500 a month, which dwarfs most of the rate shopping people agonise over.

Homeowner's insurance, and where applicable flood or windstorm coverage, adds more. Condominium and planned-community HOA dues are not part of your mortgage but are a mandatory monthly cost and are counted by lenders when they assess what you can afford. When comparing two homes, compare the full monthly carrying cost, not the mortgage payment.

Points, rates and the break-even

Lenders will often offer to reduce your rate in exchange for discount points paid up front — typically 1% of the loan amount for a fraction of a percentage point off the rate. Whether that is worth it comes down to one calculation: divide the cost of the points by the monthly payment saving to get the number of months to break even. If you expect to sell or refinance before then, paying points loses money. Because the average mortgage is held far less than its full term, the break-even is often longer than buyers assume.

What you can borrow vs what you should

Lenders qualify you on debt-to-income ratios, commonly allowing total debt payments up to somewhere in the low-to-mid 40s as a percentage of gross monthly income. That is a ceiling, not a recommendation. It is calculated on gross income, before income tax, Social Security and Medicare come out — which is why a payment that looks affordable on paper can be uncomfortable in practice.

A more useful starting point is to work from your actual take-home pay and decide what share of it you want housing to consume. The gap between the maximum a lender will approve and the amount that leaves you room to save is usually large, and closing it is the borrower's job, not the lender's.

Fixed, ARM, and the 15-year question

A 30-year fixed rate is the US default and its appeal is certainty: the payment cannot change. An adjustable-rate mortgage starts lower and resets against an index after an initial fixed period, which is a bet on where rates go and on how long you will stay. A 15-year fixed typically carries a lower rate and dramatically less total interest, at the cost of a much higher monthly payment and less flexibility. Running all three through the calculator above with the same loan amount makes the trade-off concrete in a way that comparing rates alone does not.

Frequently asked questions