How this mortgage calculator works
This calculator answers the two questions every home buyer asks: “what will my monthly payment be?” and “how much can I borrow?”. Enter the loan amount, the interest rate, the term, optional mortgage insurance and your household income and debts. Every result updates instantly: monthly payment, total interest, debt-to-income ratio, maximum loan and overall home budget.
The maths follows the standard method lenders use for fixed-rate, fully amortizing loans: equal monthly payments in which the interest share shrinks over time while the principal share grows.
The monthly payment formula
The principal and interest payment comes from the amortization formula:
M = P × r / (1 − (1 + r)^−n)
- P: the principal, i.e. the amount you borrow;
- r: the monthly interest rate, which is the annual rate divided by 12 (6.5% ÷ 12 = 0.5417% per month);
- n: the total number of payments (30 years × 12 = 360).
If your down payment is below 20%, conventional lenders usually add private mortgage insurance (PMI). The calculator models it as a yearly percentage of the loan amount: 0.5% on $300,000 is $1,500 a year, or $125 per month.
Worked example
A household borrows $300,000 over 30 years at 6.5%, earns $8,000 gross per month and already pays $500 a month on a car loan:
| Item | Amount |
|---|---|
| Principal & interest | $1,896.20 |
| Total interest over 30 years | $382,633 |
| Debt-to-income ratio | 30.0% |
| Maximum affordable payment (36% DTI) | $2,380 |
| Maximum loan | about $376,500 |
Over the life of the loan the household pays more in interest than the original principal, which is typical for a 30-year term at this rate. Its total debt-to-income ratio of 30% sits comfortably under the 36% guideline, and it could borrow up to roughly $376,500 with the same rate and term.
Debt-to-income ratio explained
Lenders measure affordability with the debt-to-income ratio (DTI):
DTI = (all monthly debt payments, including the new mortgage) ÷ gross monthly income × 100
A widely used benchmark is the 28/36 rule: housing costs should stay below 28% of gross income and total debt below 36%. In practice, many conventional loans accept a back-end ratio up to 43% to 45%, and some FHA loans go up to 50% for borrowers with strong credit or cash reserves.
The calculator shows a colored badge: green up to 28%, amber up to the maximum you set, red above it. Change the maximum DTI to match a specific lender or loan program.
How borrowing capacity is calculated
Capacity starts from the maximum affordable payment:
Maximum payment = income × maximum DTI − other debts
The calculator then finds the loan amount whose payment, including mortgage insurance, equals exactly that figure. Because the payment equals P × (amortization factor + monthly insurance rate), it simply divides the maximum payment by that factor. Add your down payment and you get the home price you can target.
Remember that lenders also look at your credit score, employment history, cash reserves and the property itself, so this is an upper bound rather than a promise of approval.
Loan term: 15 vs 30 years
A longer term lowers the payment and raises how much you can borrow, but it makes the loan far more expensive. With $300,000 at 6.5%:
| Term | Monthly payment | Total interest |
|---|---|---|
| 15 years | $2,613.32 | $170,398 |
| 30 years | $1,896.20 | $382,633 |
The 15-year loan costs about $717 more per month but saves over $212,000 in interest, and in real life lenders usually offer a lower rate on shorter terms, which widens the gap further. The comparison table below the results recomputes these figures with your own inputs for terms from 10 to 30 years.
Five ways to borrow more, or pay less
- Shop several lenders: a rate difference of 0.25 point is worth thousands of dollars over the life of a loan.
- Pay down other debts: every $100 of monthly debt you clear raises your capacity by roughly $15,000 to $16,000 at current rates.
- Put 20% down: you avoid PMI and usually unlock better pricing.
- Improve your credit score: the best rates are typically reserved for scores of 740 and above.
- Consider buying points: paying upfront to lower the rate can pay off if you keep the loan long enough.
Sharing and saving your scenario
Every value you type is mirrored in the page address. Use the Share this calculation button to copy a link that reopens the calculator with exactly the same inputs, which is handy to compare offers with a partner, a broker or a loan officer. Bookmark several links to keep different scenarios side by side, for example a 15-year and a 30-year option, or a purchase with and without PMI.
Limitations
The results are estimates for a standard fixed-rate loan. They do not include property taxes, homeowners insurance, HOA dues, closing costs, FHA or VA specific fees, or adjustable-rate resets. Your official Loan Estimate shows the APR, which includes most fees and is therefore higher than the interest rate entered here.