Mortgage Calculator USA 2025

A mortgage is a type of loan that you obtain from a bank or financial institution to purchase a property. The property serves as collateral, which means the lender has the right to claim it if the borrower fails to repay the loan.

Mortgage payments typically consist of:
1. Principal – The amount that reduces the outstanding loan balance.
2. Interest – The cost of borrowing the money.

Mortgages often have a maximum term of 30 years. Borrowers can choose between:
• Annuity Mortgage: Equal total monthly payments throughout the loan term.
• Linear Mortgage: Monthly payments decrease over time as the principal is repaid more quickly.

Mortgage interest is calculated on the outstanding loan balance. In the early years, most of your monthly payment goes toward interest, while the principal is reduced slowly. Over time, the interest portion decreases, and the principal repayment increases.

Total monthly payments (principal + interest) remain the same throughout the loan term.

• P: Loan amount (Principal)
• r: Monthly interest rate (Annual rate ÷ 12)
• n: Total number of payments (Loan term in months)

Loan: $300,000
Interest rate: 4% annually (0.00333 monthly)
Term: 30 years (360 months)

Monthly Payment (M): M = $300,000 × [0.00333(1 + 0.00333)360] / [(1 + 0.00333)360 − 1]

M ≈ $1,432 per month

• Interest: $300,000 × 0.00333 = $1,000
• Principal: $1,432 − $1,000 = $432

Over time, the principal portion increases, and the interest decreases.

Private Mortgage Insurance, commonly known as PMI, is a type of insurance required by lenders when a borrower’s down payment is less than 20% of the home’s purchase price. PMI is designed to protect the lender in case the borrower defaults on the mortgage. PMI is typically applied to conventional loans, not government-backed loans like FHA or VA loans.

PMI was introduced in the United States in the mid-20th century as a way to make homeownership more accessible. It allows borrowers with smaller down payments to secure mortgages, expanding opportunities for buying a home.

PMI is calculated as a percentage of the outstanding loan balance and is typically between 0.5% and 1% annually. The exact rate depends on factors such as:

• The borrower’s credit score.
• Loan-to-value (LTV) ratio.
• Loan amount.

Formula for PMI Calculation: PMI = Loan Amount × PMI Rate ÷ 12

Imagine you're purchasing a home for $300,000 with a 10% down payment ($30,000). This means your loan amount is $270,000.

If your lender charges a PMI rate of 0.75% per year, the PMI cost is calculated as follows:
PMI Annual Cost = $270,000 × 0.0075 = $2,025 per year
Monthly PMI Payment = $2,025 ÷ 12 = $168.75 per month

This PMI fee will be added to your monthly mortgage payment until your loan-to-value (LTV) ratio drops below 80%, at which point the PMI is automatically removed.

PMI payments are typically required until the LTV ratio drops below 80%. This can happen through regular monthly payments or prepayments. Borrowers may request the cancellation of PMI when their LTV reaches 80%, or it will automatically terminate when the LTV reaches 78%, provided the borrower is current on payments.

Key Benefits and Drawbacks of PMI:

• Benefits: Allows buyers to secure a mortgage with a smaller down payment, making homeownership accessible sooner.
• Drawbacks: Adds to monthly housing costs and does not protect the borrower, only the lender.

While PMI applies to conventional loans, FHA loans require a different type of insurance called Mortgage Insurance Premium (MIP). Unlike PMI, MIP lasts for the life of the loan if the borrower’s down payment is less than 10%.