Mortgage Calculator

A mortgage is a specialized loan secured by real estate. When you buy a home, the bank or lender advances you the money to purchase the property, and in exchange, you agree to pay it back over time with interest. The property itself serves as collateral, meaning that if you default on payments, the lender has the right to repossess the home through foreclosure.

Monthly Principal & Interest (P&I) payments are calculated using an amortization formula based on the borrowed loan amount, monthly interest rate, and total number of months. Optional costs like property taxes (usually around 1.2% of the home value annually), homeowners insurance, and Homeowners Association (HOA) fees are added to determine the final total monthly layout.

Principal is the actual principal balance of the cash you borrowed to buy the house. Interest is the fee the lender charges you for borrowing that money. During the early years of a mortgage, a larger proportion of your monthly payment goes toward paying off the interest due to the high remaining balance. Over time, as the balance falls, more of each payment goes toward reducing the principal.

PMI is an insurance premium required by lenders when you make a down payment of less than 20% of the home price (which equals a Loan-to-Value ratio above 80%). It protects the lender if you default on the loan. You can avoid PMI by making a down payment of 20% or more, or you can request that your lender cancel it once your remaining principal balance drops below 80% of the original purchase price.

Any extra payment you make goes directly toward reducing your principal balance, not the interest. Because interest is calculated based on the remaining balance, paying down principal faster decreases the amount of interest that accumulates in future periods. This accelerates your payoff timeline (saving months or years) and reduces the total lifetime interest paid.