How mortgage payments are calculated
A fixed-rate, fully amortizing mortgage generally uses the loan balance, monthly interest rate and number of scheduled payments to calculate a level principal-and-interest payment. Early payments usually contain more interest, while later payments apply more money to principal as the balance declines.
The mortgage payment shown by a calculator might not include every housing expense. Property taxes, insurance, homeowners association fees and mortgage insurance can change independently and do not reduce the mortgage principal.
Home price, down payment and loan-to-value
The down payment reduces the amount financed. Loan-to-value divides the mortgage balance by the property value. For example, a $320,000 mortgage on a $400,000 home has an 80% LTV before considering other secured borrowing. A lender may use the lower of the purchase price and accepted appraisal for a purchase transaction.
A lower LTV can affect product availability, pricing and mortgage-insurance requirements, but it does not establish that the payment is affordable or that a loan will be approved.
Mortgage interest rate, APR and total cost
The note rate is used to calculate scheduled mortgage interest. APR is a disclosure measure that incorporates certain finance charges and can help compare offers, but it does not mean that every fee is included. Compare the interest rate, APR, cash to close, monthly payment and cost over the period you realistically expect to keep the mortgage.
Buying versus refinancing
A purchase mortgage finances a home acquisition, while refinancing replaces an existing mortgage. Refinancing can reduce the rate, change the term or provide cash from equity, but closing costs and a restarted term can offset the benefit. The break-even period is especially important when you might sell or refinance again within a few years.