Frequently asked questions
How much house can I afford on my salary?
A widely used guideline is that your total monthly housing costs should not exceed 28% of your gross monthly income. For example, on a gross income of $6,000/month that means a maximum of roughly $1,680 for mortgage, taxes, and insurance combined. Use this calculator to find the home price that produces a total payment within your budget.
Is a 15-year or 30-year mortgage better?
A 15-year mortgage carries a higher monthly payment but saves dramatically on total interest. On a $320,000 loan at 6.5%, you'll pay about $174,000 in interest over 15 years versus $408,000 over 30 years. Choose 15 years if you can comfortably handle the payment; a 30-year term with extra principal payments offers a middle ground.
What is PMI and when does it go away?
Private mortgage insurance (PMI) is required by most lenders when your down payment is less than 20% of the home price. It typically costs 0.3% to 1.5% of the original loan amount per year. PMI is automatically removed once your remaining balance reaches 78% of the home's original value, which happens faster if you make prepayments.
Should I make prepayments on my mortgage?
Prepayments reduce your principal faster, saving interest and shortening the loan term. Even an additional $200/month on a $320,000 loan at 6.5% can save over $70,000 in interest and cut about 6 years off a 30-year term. You can prepay monthly, yearly, or as one-time lump sums whenever you have extra cash. Check that your loan has no prepayment penalty first.
What is the difference between monthly, yearly, and one-time prepayments?
Monthly prepayments are a fixed extra amount you pay every month on top of your regular payment. Yearly prepayments are a lump sum applied once per year (e.g. from a bonus). One-time prepayments are ad-hoc amounts applied in a specific month and year. All three reduce your principal and save interest, but earlier and more frequent prepayments have the greatest impact.
Why is most of my early payment going to interest?
Amortization front-loads interest because it is calculated on the outstanding balance, which is highest at the start. On a 30-year mortgage it typically takes 15 to 18 years before more than half of each payment goes to principal. Prepayments early on have the greatest impact because they reduce the balance that future interest is calculated on.
What costs does this calculator include?
It calculates the full monthly housing cost: principal and interest on the loan, property taxes (as a percentage of home value), homeowner's insurance, PMI (if your down payment is below 20%), HOA fees, and any other annual costs you add. It also models prepayments (monthly, yearly, and one-time) to show you how much time and interest you can save.