Mortgage Calculator

While the traditional recommendation is 20% down to avoid PMI, many buyers put down much less. FHA loans allow as little as 3.5% down for qualifying borrowers, and some conventional loans accept 3-5% for first-time buyers. However, smaller down payments mean higher monthly costs. On a $350,000 home, a 20% down payment ($70,000) plus closing costs of about $10,000-15,000 means you'd need roughly $80,000-85,000 cash to close. Compare that to 5% down ($17,500) plus PMI of about $150-200 per month. The trade-off is clear: saving longer for a larger down payment reduces your monthly burden significantly, but renting while you save has its own costs to consider.

The 30-year mortgage offers lower monthly payments, which frees up cash for investing, emergencies, or other goals. A 15-year mortgage saves enormous amounts in total interest but requires higher monthly payments that strain budgets. For example, a $280,000 loan at 6.5% costs about $1,770 per month over 30 years with total interest of $357,000. The same loan over 15 years costs $2,449 per month but total interest drops to $161,000, saving nearly $196,000. The sweet spot might be a 30-year mortgage with extra principal payments, giving you the flexibility of a lower required payment while accelerating payoff.

The interest rate is the base cost of borrowing money expressed as a percentage. APR, or Annual Percentage Rate, includes the interest rate plus other loan costs like origination fees, discount points, and mortgage insurance premiums, giving you the true annual cost of the loan. If one lender offers 6.5% with no points and another offers 6.25% with 1 point (1% of loan amount), the APR comparison reveals which is actually cheaper. Always compare loans at the same point structure using APR as your apples-to-apples metric. A small difference in APR over 30 years can mean tens of thousands of dollars in savings.

Many lenders require you to pay 1/12 of your annual property taxes and homeowner's insurance each month into an escrow account, which then pays the bills when they come due. These can significantly increase your total monthly payment beyond just principal and interest. Property taxes vary enormously by location, from under 0.5% of home value annually in some states to over 2% in others. A $400,000 home in New Jersey might have $9,000 in annual property taxes ($750/month), while the same home in Oregon might have only $4,500. Homeowner's insurance averages $1,200-1,500 per year but can be much higher in areas prone to natural disasters. Always factor these into your housing budget.

Refinancing makes sense when you can drop your interest rate by at least 0.75-1% and you plan to stay in the home long enough to recoup closing costs, which typically run 2-5% of the loan amount. If you can reduce your rate from 7% to 5.75% on a $300,000 balance with $6,000 in closing costs, you'd save about $249 per month and break even in about 24 months. After that, it's pure savings. Refinancing also makes sense to switch from an adjustable-rate to a fixed-rate mortgage, to remove PMI after building enough equity, or to tap home equity for major expenses through a cash-out refi.