How a mortgage calculator helps you
Determining what your mortgage interest rates today and what your monthly payment will be is an important part of figuring out how much house you can afford. That monthly payment is likely to be the biggest part of your cost of living.
Using NerdWallet’s mortgage calculator lets you estimate your mortgage payment when you buy a home or refinance. You can change loan details in the calculator to run scenarios. The calculator can help you decide:
- The home loan term length that’s right for you. 30-year fixed-rate mortgage lower your monthly payment, but you’ll pay more interest over the life of the loan. A 15-year fixed-rate mortgage reduce the total interest you'll pay, but your monthly payment will be higher. c
- If an ARM is a good option. Adjustable-rate mortgages start with a "teaser" interest rate, and then the loan rate changes — higher or lower — over time. A 5/1 ARM can be a good choice, particularly if you plan on being in a home for just a few years. You’ll want to be aware of how much your monthly mortgage payment can change when the introductory rate expires, especially if interest rates are trending higher.
- If you’re buying too much home. The mortgage payment calculator can give you a reality check on how much you can expect to pay each month, especially when considering all the costs, including taxes, insurance and private mortgage insurance.
- If you’re putting enough money down. With minimum down payments commonly as low as 3%, it's easier than ever to put just a little money down. The mortgage payment calculator can help you decide what the best down payment may be for you.
How lenders decide how much you can afford to borrow
Mortgage lenders are required to assess your ability to repay the amount you want to borrow. A lot of factors go into that assessment, and the main one is debt-to-income ratio.
Your debt-to-income ratio is the percentage of pretax income that goes toward monthly debt payments, including the mortgage, car payments, student loans, minimum credit card payments and child support. Lenders look most favorably on debt-to-income ratios of 36% or less — or a maximum of $1,800 a month on an income of $5,000 a month before taxes.
Typical costs included in a mortgage payment
If your mortgage payment included just principal and interest, you could use a bare-bones mortgage calculator. But most mortgage payments include other charges as well. Here are the key components of the monthly mortgage payment:
- Principal: This is the amount you borrow. Each mortgage payment reduces the principal you owe.
- Interest: What the lender charges you to lend you the money. Interest rates are expressed as an annual percentage.
- Property taxes: The annual tax assessed by a government authority on your home and land. You pay about one-twelfth of your annual tax bill with each mortgage payment, and the servicer saves them in an escrow account. When the taxes are due, the loan servicer pays them.
- Homeowners insurance: Your policy covers damage and financial losses from fire, storms, theft, a tree falling on your house and other bad things. As with property taxes, you pay roughly one-twelfth of your annual premium each month, and the servicer pays the bill when it's due.
- Mortgage insurance: If your down payment is less than 20% of the home’s purchase price, you’ll likely pay mortgage insurance. It protects the lender’s interest in case a borrower defaults on a mortgage. Once the equity in your property increases to 20%, the mortgage insurance is canceled, unless you have an FHA loan backed by the Federal Housing Administration.
Typically, when you belong to a homeowners association, the dues are billed directly, and it's not added to the monthly mortgage payment. Because HOA dues can be easy to forget, they're included in NerdWallet's mortgage calculator.
Reducing monthly mortgage payments
The mortgage calculator lets you test scenarios to see how you can reduce the monthly payments:
- Extend the term (the number of years it will take to pay off the loan). With a longer term, your payment will be lower but you’ll pay more interest over the years. Review your amortization schedule to see the impact of extending your loan.
- Buy less house. Taking out a smaller loan means a smaller monthly mortgage payment.
- Avoid paying PMI. With a down payment of 20% or more, you won’t have to pay private mortgage insurance. Similarly, keeping at least 20% equity in the home lets you avoid PMI when you refinance.
- Get a lower interest rate. Making a larger down payment can not only let you avoid PMI, but reduce your interest rate, too. That means a lower monthly mortgage payment.
Monthly mortgage payments can go up
Your monthly payment can go up over time if:
- Property taxes or homeowners insurance premiums rise. These costs are included in most mortgage payments.
- You incur a late payment fee from your mortgage loan servicer.
- You have an adjustable-rate mortgage and the rate rises at the adjustment period.
Mortgage interest rates and closing costs are important factors for homebuyers and homeowners to consider when making financial decisions. Mortgage interest rates can have a significant impact on the overall cost of a home, and can vary depending on a variety of factors such as the type of loan, the borrower's credit score, and the current state of the economy. In recent years, interest rates have been relatively low, which has made it an attractive time to purchase a home or refinance an existing mortgage.
Closing costs are another important consideration for homebuyers, as they can add up to several thousand dollars in additional expenses beyond the purchase price of the home. These costs can include fees for the loan application, appraisal, title search, and other services. Homebuyers should be aware of these costs and look for ways to reduce them, such as negotiating with the lender or shopping around for different service providers.
Mortgage interest rates today
Mortgage interest rates are determined by a variety of factors, including the Federal Reserve's monetary policy, inflation, and market demand for mortgage loans. In general, fixed-rate mortgages offer a stable interest rate over the life of the loan, while adjustable-rate mortgages may offer lower initial rates but can fluctuate over time.
As of March 2023, mortgage interest rates are still historically low, with the average rate for a 30-year fixed-rate mortgage hovering around 3.5%. However, rates may vary depending on the borrower's credit score, loan type, and other factors. Borrowers can use online calculators to estimate their monthly mortgage payments based on current interest rates and other variables.
Closing costs can add up to several thousand dollars in additional expenses for homebuyers, so it's important to be aware of them and look for ways to reduce them. Some common closing costs include loan origination fees, appraisal fees, title insurance, and property taxes.
To reduce closing costs, homebuyers can negotiate with the lender or look for service providers who offer lower fees. Some lenders may also offer incentives such as closing cost credits or lower interest rates for borrowers who meet certain criteria. Additionally, homebuyers can opt for a no-closing-cost mortgage, which may have a higher interest rate but can help reduce upfront costs.
Mortgage lenders and companies
There are a variety of mortgage lenders and companies available to borrowers, including banks, credit unions, online lenders, and mortgage brokers. Each type of lender has its own pros and cons, so borrowers should carefully consider their options and choose the one that best fits their needs.
Banks and credit unions may offer more personalized service and lower interest rates, but may have stricter credit requirements. Online lenders may offer more convenience and faster processing times, but may have higher interest rates and less personal interaction. Mortgage brokers can help borrowers compare multiple lenders and find the best rates, but may charge additional fees.
Some specific mortgage lenders and companies include USAA, Homebridge Mortgage, GuildMortgage, That's My Mortgage, Sage Mortgage, AmeriMortgage, Huntington Bank Mortgage, and many others. Borrowers should research each lender's reputation and offerings to find the best fit.
Other related topics
Other topics related to mortgages include FHA-approved condos, VA home loan rates, streamline refinance and VA IRRRL rates, mortgage protection, the right to buy mortgage, and credit score requirements.
FHA-approved condos are condos that meet certain requirements for Federal Housing Administration (FHA) financing, such as being occupied by at least 50% of the units
The Importance of a Good Credit Score for Mortgage and Refinance Loans
A good credit score is crucial for getting approved for a mortgage or refinance loan with favorable terms. Lenders consider your credit score to determine your creditworthiness and the interest rate they will offer you. A high credit score indicates that you are a responsible borrower and lower the risk for lenders, resulting in better loan terms and lower interest rates. In contrast, a low credit score can make it more challenging to get approved for a loan, or you may face higher interest rates and less favorable terms. To maintain a good credit score, pay your bills on time, keep your credit card balances low, and avoid opening too many new accounts at once. Before applying for a loan, check your credit report to identify any errors or issues that may be affecting your score. By maintaining a strong credit history and score, you can increase your chances of getting approved for a loan with favorable terms and save money on interest payments over time.
Hire A Credit Repair Service
Hiring a reputable credit repair company like Pinnacle Credit Repair can be helpful when improving your credit score. Pinnacle Credit Repair offers an advanced credit analysis tool (ACAT) that identifies negative items in your credit report and creates a personalized plan to improve your score. They also promise fast results, with some clients seeing improvements in as little as 30 days.
However, it's important to be cautious when hiring a credit repair company. Look out for red flags such as guaranteed results or upfront payments. Reputable companies like Pinnacle Credit Repair provide clear and transparent pricing with no upfront fees and avoid making false promises.
In summary, if you're looking to improve your credit score, consider hiring a credit repair company like Pinnacle Credit Repair. With the help of their advanced AI tools and fast results, you can achieve your credit goals. Just be sure to choose a trustworthy and reputable company to ensure that you get the results you need.
Here are some questions and answers, along with authoritative sources for further information:
What factors affect mortgage interest rates? A: Mortgage interest rates can be influenced by a variety of factors, including the Federal Reserve's monetary policy, inflation, the state of the economy, and the borrower's credit score. For more information, visit the Federal Reserve's website: https://www.federalreserve.gov/faqs/what-determines-the-interest-rates-on-a-mortgage.htm
What are closing costs and how can I reduce them? A: Closing costs are fees associated with the purchase of a home, including loan origination fees, appraisal fees, title insurance, and property taxes. To reduce closing costs, borrowers can negotiate with the lender, shop around for different service providers, or opt for a no-closing-cost mortgage. For more information, visit the Consumer Financial Protection Bureau's website: https://www.consumerfinance.gov/owning-a-home/closing-costs-and-fees/
What are FHA-approved condos and how do they differ from other types of condos? A: FHA-approved condos are condominiums that meet certain requirements for Federal Housing Administration (FHA) financing. These requirements include being occupied by at least 50% of the units, having no more than 25% of the units owned by a single investor, and meeting certain insurance and financial requirements. For more information, visit the HUD website: https://www.hud.gov/program_offices/housing/sfh/ins/condominiums
What is a VA home loan and what are the current rates? A: A VA home loan is a type of mortgage loan that is guaranteed by the Department of Veterans Affairs (VA) for eligible veterans, active-duty service members, and their spouses. The current VA home loan rates can vary depending on a variety of factors, but as of March 2023, the average rate for a 30-year fixed-rate VA loan is around 3.0%. For more information, visit the VA's website: https://www.va.gov/housing-assistance/home-loans/
What are some of the best mortgage lenders and companies? A: Some top-rated mortgage lenders and companies include USAA, Homebridge Mortgage, GuildMortgage, Sage Mortgage, and AmeriMortgage. However, the best lender for you will depend on your individual needs and financial situation. For more information on choosing a lender, visit the Consumer Financial Protection Bureau's website: https://www.consumerfinance.gov/owning-a-home/loan-options/choose-a-mortgage-lender/