Mortgage Calculator

Fixed vs adjustable rate mortgages — how to choose

A fixed-rate mortgage locks in your interest rate and monthly payment for the entire loan term — 15, 20, or 30 years. Your payment never changes regardless of what happens to interest rates in the economy. This predictability makes fixed-rate mortgages the preferred choice for borrowers who plan to stay in their home long-term, have a tight budget that requires payment certainty, or are borrowing during a period of low interest rates.

An adjustable-rate mortgage (ARM) starts with a fixed rate for an initial period (typically 5, 7, or 10 years), then adjusts periodically (usually annually) based on a benchmark rate plus a margin. The initial rate is generally lower than a comparable fixed-rate loan, which can be advantageous if you plan to sell or refinance before the first adjustment.

ARMs carry rate risk: if interest rates rise significantly after the initial period, your payment can increase substantially. Most ARMs have caps that limit how much the rate can rise per adjustment period (typically 2%) and over the life of the loan (typically 5–6% above the initial rate). An ARM can make sense when rates are high and expected to fall, when you plan to move within 5–7 years, or when the initial rate savings justify the future uncertainty.

Down payment — how it affects your mortgage

The down payment is the portion of the home's purchase price you pay upfront from your own funds. It determines your loan amount (Price − Down Payment = Loan), your loan-to-value ratio (LTV = Loan ÷ Price), and several downstream costs.

A 20% down payment is the traditional threshold. Below 20% LTV, most conventional US lenders require Private Mortgage Insurance (PMI), which adds 0.5–1.5% of the loan amount annually to your payment — typically $100–300/month on a $300,000 loan. PMI protects the lender, not you. Once your LTV drops below 80% through repayment or appreciation, you can request PMI cancellation.

A larger down payment immediately reduces: your monthly payment (smaller loan), total interest paid over the life of the loan, and potentially your interest rate (lower LTV = lower risk = better rate tier). A smaller down payment conserves cash for emergencies, investments, or closing costs, but increases monthly payment and total interest cost. The optimal down payment depends on your specific financial situation — run both scenarios in this calculator to see the actual numbers.

Understanding the full cost of homeownership beyond the mortgage

The monthly mortgage payment shown by this calculator covers only principal and interest (P&I). Actual monthly homeownership costs include several additional items that can add 25–50% to your base P&I payment.

Property taxes: typically 0.5–2.5% of home value annually, paid through an escrow account alongside your mortgage. A $400,000 home at 1.5% tax rate adds $500/month.

Homeowner's insurance: required by lenders. Typically $100–300/month for a median-priced US home. Higher in disaster-prone areas (flood, hurricane, earthquake zones).

Private Mortgage Insurance (PMI): required if your down payment is below 20%, adding roughly $100–300/month until LTV reaches 80%.

Maintenance and repairs: the widely cited 1% rule suggests budgeting 1% of home value annually for maintenance — $4,000/year on a $400,000 home, or ~$333/month. New homes have lower maintenance; older homes higher.

HOA fees: if applicable, ranging from $50/month for a basic neighborhood association to $1,000+/month for luxury condominiums with extensive amenities.

Total true cost of ownership often exceeds the mortgage payment by $800–1,500/month for a median US home.