How the Home Loan Calculator works
This tool estimates the monthly cost of a home loan using the standard mortgage amortization formula — the same math lenders use to build a payment schedule. Enter the home price, down payment, loan term, and interest rate, and it computes the fixed principal-and-interest payment, adds estimated property tax and insurance, and totals the interest paid over the life of the loan.
The formula
For a loan amount P (home price minus down payment), a monthly interest rate i (the annual rate divided by 12), and n total monthly payments (loan term in years times 12), the fixed monthly principal-and-interest payment is:
M = P × [i(1 + i)n] / [(1 + i)n − 1]
If the interest rate is 0%, the formula reduces to M = P / n — the loan amount split into equal installments with no interest charged. The calculator assumes a fixed rate for the full term and standard monthly compounding.
Worked example
Take a $350,000 home with 20% down ($70,000), leaving a $280,000 loan over 30 years at 6.5%. The monthly rate is 0.065 / 12 ≈ 0.005417 and n = 360 payments. The formula gives a principal-and-interest payment of roughly $1,770 per month, for about $357,000 of total interest over the full term. Adding an estimated 1.1% annual property tax (about $321/month) and $1,500/year insurance ($125/month) brings the estimated total monthly payment (PITI) to roughly $2,216.
Why interest dominates early payments
Interest is charged each month on the remaining balance, and that balance is largest at the start of the loan. So in the early years, most of each fixed payment covers interest and relatively little reduces principal. As the balance shrinks, the split gradually flips, and later payments are mostly principal — a pattern called amortization.
What moves the payment most
- Down payment: a larger down payment directly lowers the loan amount, which reduces both the monthly payment and the total interest paid, since interest accrues on a smaller balance throughout.
- Interest rate: even a small rate change has a large effect over a 30-year term, because it compounds on the outstanding balance every month.
- Loan term: a shorter term raises the monthly payment but sharply cuts total interest, since the balance is paid down faster and accrues interest for fewer months.
Assumptions and limits
This calculator models a standard fixed-rate, fully-amortizing loan with no extra principal payments, PMI, HOA dues, or closing costs. Property tax and insurance are estimates you supply, not quotes — actual escrow amounts vary by locality and policy. Use the results as a planning baseline, not a binding loan estimate.