MortgageCalculatorAI
Fixed & ARM • Amortization • Excel download

Mortgage Guide

Understand your payment, compare fixed-rate vs ARM, and avoid common mistakes. Use the calculator for scenarios and the glossary for definitions.

1) What your monthly payment includes

Your mortgage payment often includes principal and interest (P&I). Many borrowers also pay property taxes and homeowners insurance through an escrow account. Depending on the property, you might also pay HOA dues and PMI.

  • P&I: the core loan payment (interest + principal payoff)
  • Taxes: varies heavily by city/county/state
  • Insurance: varies by home value, location, and risk
  • HOA: common in condos and some neighborhoods
  • PMI: often when down payment is under ~20% (conventional)

2) Fixed-rate vs ARM (adjustable-rate mortgage)

A fixed-rate mortgage keeps the same interest rate for the full term (e.g., 30 years). An ARM usually has a lower intro rate for a set period (e.g., 5 years), then adjusts based on an index + margin.

ARMs include caps that limit how much the rate can change at each adjustment and over the life of the loan. If you might sell/refinance before the intro period ends, an ARM can be attractive — but it also introduces uncertainty.

3) Down payment, LTV, and PMI

Your down payment affects your LTV (loan-to-value). Higher LTV can mean higher lender risk, which can lead to PMI or a higher rate.

  • 20% down: often avoids PMI for conventional loans
  • 3–10% down: common for first-time buyers, but may require PMI
  • Trade-off: more down lowers payment, but ties up cash

4) Interest rate vs APR

The interest rate drives the monthly P&I payment. APR can include some lender fees and provides a broader cost measure. For planning, what matters most is your true monthly payment and how long you expect to keep the loan.

5) Points and break-even

Points are optional upfront fees you can pay to reduce your rate. A simple way to evaluate points is break-even time:

  • Upfront cost = points % × loan amount
  • Monthly savings = payment(without points) − payment(with points)
  • Break-even months ≈ upfront cost ÷ monthly savings

If you’ll refinance or sell before break-even, points may not pay off.

6) Common mistakes to avoid

  • Comparing only P&I and ignoring taxes, insurance, HOA, and PMI
  • Assuming taxes/insurance are “small” (they can be a big monthly cost)
  • Not stress-testing an ARM for higher future rates
  • Overlooking lender fees when comparing offers

Next steps

Use the calculator to compare scenarios, and the glossary for definitions like PMI, escrow, LTV, and ARM caps.

FAQ

What does a mortgage payment include?
Most borrowers pay principal and interest (P&I). Many also pay property taxes and homeowners insurance via escrow. Some homes also have HOA dues and PMI.
Is an ARM always cheaper than a fixed-rate mortgage?
Not always. ARMs may start lower, but the rate can rise after the intro period. The best choice depends on how long you’ll keep the loan and how rates move.
When do I have to pay PMI?
For many conventional loans, PMI is often required when your down payment is less than about 20%. FHA and other programs have different rules.
What are points and when are they worth it?
Points are upfront fees that can lower your interest rate. They can be worth it if you keep the loan long enough for monthly savings to exceed the upfront cost.