Question 1

How is a monthly mortgage payment calculated?

Accepted Answer

Lenders use the standard amortizing-loan formula: M = P × [r(1+r)^n] / [(1+r)^n − 1], where P is your loan amount, r is your monthly interest rate (annual rate ÷ 12), and n is the number of monthly payments. This spreads your loan into equal payments where the interest and principal portions shift over time.

Question 2

What does PITI stand for?

Accepted Answer

PITI stands for Principal, Interest, Taxes, and Insurance — the four components lenders typically use to evaluate your full monthly housing cost. Principal and interest pay down your loan; property taxes and homeowners insurance (and PMI, if required) are usually collected by your lender and held in an escrow account.

Question 3

What is PMI and when can I remove it?

Accepted Answer

Private Mortgage Insurance (PMI) protects the lender if you default on a conventional loan with less than 20% down. It typically costs 0.5%–1.5% of your loan amount per year. You can usually request PMI removal once your loan balance drops to 80% of your home's original value, and lenders are required to automatically cancel it at 78%.

Question 4

What is the difference between 30-year and 15-year mortgages?

Accepted Answer

A 30-year fixed mortgage spreads payments over 360 months, giving you a lower monthly payment but more total interest over the life of the loan. A 15-year fixed mortgage pays off the loan twice as fast with a higher monthly payment but substantially less total interest, since less time is spent accruing interest on the outstanding balance.

Question 5

How does an ARM mortgage work?

Accepted Answer

An adjustable-rate mortgage (ARM) starts with a fixed interest rate for an initial period — 5 or 7 years in a 5/1 or 7/1 ARM — then adjusts annually based on a market index plus a margin. Payments can rise or fall after the fixed period ends, so ARMs are best suited to borrowers who plan to sell or refinance before the rate starts adjusting.

Question 6

How much house can I afford on my salary?

Accepted Answer

Most lenders use the 28/36 rule as a starting point: your housing payment (PITI) should stay under 28% of your gross monthly income, and your total debt payments — including the mortgage — should stay under 36%. Your actual affordability also depends on your down payment, credit score, existing debt, and the lender's specific guidelines.

Question 7

What is the current average 30-year mortgage rate?

Accepted Answer

Mortgage rates change daily based on bond markets, Federal Reserve policy, and your personal credit profile, so there's no single fixed number. Enter your own rate quote into the calculator above to see your real payment, and check a source like Freddie Mac's Primary Mortgage Market Survey for the latest national averages.

Question 8

Does this calculator work for Canadian mortgages?

Accepted Answer

This calculator uses the standard U.S. amortization formula, which works for fixed-rate Canadian mortgages too, but Canadian lenders compound interest semi-annually by law rather than monthly, so the numbers won't match exactly. For a more accurate Canadian estimate, look for a calculator that uses semi-annual compounding.

Question 9

What is amortisation?

Accepted Answer

Amortisation is the process of paying off a loan through scheduled payments that combine principal and interest. Early in the schedule, most of each payment goes toward interest because the balance is highest; as the balance shrinks, more of each payment goes toward principal, even though the total payment stays the same.

Question 10

How do extra payments affect my mortgage?

Accepted Answer

Extra payments go directly toward your principal balance, which reduces the amount of interest that accrues on every future payment. Even small, consistent extra payments can shave years off a 30-year loan and save thousands of dollars in interest, since you're shrinking the balance the interest rate is applied to.

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