The Mortgage Center @ AccurateCalculators.com

Introduction

Obtaining a mortgage can be stressful, even when the process is straightforward. The Mortgage Center @ Financial-Calculators.com provides background information to help you with each step in the process.

According to The FRED® Blog — Comparing household assets across the wealth distribution (April 4, 2024), a home is one of the most commonly held household assets, and home equity is a major contributor to household wealth:

As of fourth quarter 2023, households in the bottom 50% hold just over 50% of their assets in real estate. Households in the top 1% and top 0.1% hold 13.1% and 9% of their total assets in real estate, respectively.

If you are undecided about buying a home, the information below may help you make an informed decision.

This guide covers the following topics:

• The key factor in comparing mortgages — the annual percentage rate (APR)
• The potential tax benefits of having a mortgage
• Is buying a house a good investment?
• How making extra payments can save you money
• Two practical tips for saving money
• Understanding adjustable-rate mortgages (ARMs)
• Your comments and questions

A mortgage is a loan secured by real estate.

What does this mean in practice?

In general, lending falls into two categories:

• A lender may provide funds based on your creditworthiness (or for personal reasons, such as trust or a relationship). For example, credit card issuers extend credit based on repayment history. If you fail to repay, the lender cannot seize your property. This type of borrowing is called an unsecured loan.
• The second category includes loans backed by specific assets. If the borrower fails to repay as agreed, the lender has the legal right to take possession of the pledged asset(s). This is known as a secured loan. A mortgage is a secured loan because the lender may claim ownership of the property if the borrower defaults.

Use the APR to compare mortgage offers.

In the U.S., the APR is one of the few lending figures regulated by the federal government under the Truth in Lending Act (TILA). Some people assume that the government regulates payment amounts. It does not. A lender may generally offer any payment amount, provided the borrower agrees to the terms.

However, the APR is different from the payment amount. The APR is not simply an interest rate. It is a rate of return on the loan, and theTILAexplicitly defines how it must be calculated. (The Act does not set minimum or maximum APR values.) The Consumer Financial Protection Bureau, which assumed this responsibility from the U.S. Federal Reserve, oversees compliance.

The APR benefits borrowers. Since TILA was enacted in 1968 and a standardized method for calculating APR was mandated, consumers have been able to compare loan offers more consistently. Before this disclosure requirement, borrowers often compared only interest rates or payment amounts and then tried to include fees on their own.

For example, was a 5% mortgage interest rate with $2,000 in closing costs a better choice than a 5.125% mortgage with lower closing costs?

There was no clear answer without performing manual calculations, and borrowers risked choosing the more expensive loan.

Today, lenders are required to comply with TILA. This means they must calculate the APR using the same federally mandated method. (The Act itself is lengthy.)

Although the APR is useful, it has a limitation: The APR is a “personal number” because fees, timing, and loan details differ from borrower to borrower. Borrowers cannot reliably compare lenders based only on advertised APRs. These figures are reference points only.

Several factors influence your personal APR, including the quoted payment amount, fees, and other charges. Required inspection reports, attorney’s fees, and loan application fees are also included in the APR calculation. Because these costs vary by lender, your APR will vary as well.

Because advertised APRs alone are not sufficient for accurate comparisons, you should request an APR Disclosure Statement from each lender. Alternatively, use a calculator that performs an APR calculation based on your specific loan terms.

How do you calculate an APR?

The Accurate Mortgage Calculator calculates the APR for you. To ensure accuracy, provide the following information:

• Loan amount
• Payment amount (either the lender’s quoted amount or the calculated amount)
• Other loan details: amount, term, and interest rate
• Points, if applicable
• Total of all required lender fees and charges
• PMI rate, if applicable

(Optional charges that the lender does not require—for example, an upgraded septic inspection—are excluded from the APR calculation.)

There is an additional important consideration when comparing APRs: The lowest APR is not always the best option.

Why might a borrower choose a loan with a higher APR?

As noted above, the APR is a “personal number.” For example, a 30-year loan’s APR assumes that you will keep the loan for the full 30-year term. The same principle applies to a 15-year mortgage or any other term.

Your plans may be different. If you intend to sell the property before the end of the term, the calculated APR will not reflect your true cost. Fees and charges are usually paid at closing, so when the loan is repaid early, those fees have a proportionally greater effect on your effective APR.

In general, the shorter the time you hold the loan, the greater the impact of fees—which increases your effective APR. For example, paying points to lower your rate may appear to reduce APR compared with another offer, but that benefit may apply only if you keep the loan for the full term. If you expect to sell sooner, a loan with a slightly higher APR and lower upfront costs may be more cost-effective.

In the U.S., the federal government provides a potential tax benefit for homeowners who have a mortgage on their primary residence. The UMC displays this benefit as a dollar amount (that is, the estimated tax savings) on the amortization schedule if you supply your marginal tax rate.

Calculating the tax benefit from mortgage interest and property taxes was once straightforward. That is no longer the case. TheOne Big Beautiful Bill Act of 2025introduced new deduction rules. As a result, the calculator may overstate this benefit in certain situations, including the following:

• If you do not itemize deductions on your federal return, then mortgage interest and property taxes will not reduce your income tax. In this case, do not enter a marginal tax rate. The IRS reports that most filers now claim the standard deduction, which remains significantly higher than it was before 2018.
• If your combined property taxes and state income taxes exceed the deduction cap, or if your mortgage balance exceeds the deductible limit, the calculator may overstate your benefit. The calculator does not apply deduction ceilings or phaseout rules, which vary by income level and filing status.

As of the 2025 tax year, the following limits apply, based on guidance from theThomson Reuters Tax Blog:

• The deduction for state and local taxes (SALT)—including property taxes—is capped at $40,000 for most filers in 2025. This cap begins to phase out for incomes over $500,000 and increases slightly each year through 2029. It reverts to $10,000 in 2030.
• You may deduct interest on up to $750,000 of acquisition mortgage debt (or $375,000 if married filing separately), as long as the loan was used to buy or significantly improve a primary or secondary residence. These limits remain unchanged under the 2025 law.

The tax benefit option remains available in the calculator for users who qualify and who understand these limitations.

In many cases, yes—buying a house can be a good investment.

Consider the increase in home prices over various time periods, measured by the S&P CoreLogic Case-Shiller U.S. National Home Price Index:

These figures may suggest that buying a home is a good investment and that financing it with a mortgage is a reasonable choice. However, home price appreciation is only one factor. Additional considerations are necessary before you reach a reliable conclusion.

To do this, you need a consistent way to measure investment performance. Specifically, which measure indicates whether a mortgage is a good investment?

If you are already familiar with ROI, you may skip to the section How Do I Calculate the ROI?

The Key Number to Understand: ROI

Return on investment (ROI), sometimes called rate of return (ROR) or internal rate of return (IRR), measures the gain or loss on an investment, expressed as an annualized percentage.

If you invest $1,000 and sell for $1,500 after one year, your ROI is 50%.

However, the term “annualized” is important. If you make the same $500 profit over two years, the ROI drops to about 22%. (See ROI Calculator.)

Now suppose you receive $750 back after one year and the remaining $750 after the second year. Your gross return is still 50%, but the ROI improves to nearly 32%. (See IRR Calculator.)

This occurs because receiving money earlier in the timeline improves the return. It is more valuable to receive part of your return sooner.

The key point is that ROI helps compare investment options on equal terms. Even if the total gain is the same, the ROI reveals important differences in performance.

You can use ROI to compare 15-year and 30-year mortgages, or any loan term you choose.

That is why the UMC calculates ROI—to help you evaluate whether homeownership is a good investment for your situation. In general, if the ROI is negative, renting may be the better financial choice. If the ROI is positive, it suggests that you will earn a financial return on the purchase.

How Do I Calculate the ROI?

This calculator performs the math for you, but you still need to make several key decisions:

• Which expenses do you want to include in the analysis? Only direct mortgage costs (down payment, monthly payments, points), or also estimated maintenance, insurance, and property taxes?
• Do you want to adjust for inflation? Over 15 or 30 years, inflation can have a meaningful impact. The calculator supports both inflation-adjusted and unadjusted ROI analysis.

The UMC is highly flexible. It uses preloaded default values, but you can adjust inputs as needed. (Details about these defaults appear below.)

For this example, we will assume a 30-year mortgage and estimate future home value growth using the Case-Shiller Index (CSHPI) at 4% annually.

For inflation on homeownership costs (maintenance, taxes, and similar expenses), we will use 2%. According to the Federal Reserve Bank of St. Louis, “the FOMC adopted an explicit inflation target of 2% in January 2012.” (Although the Fed has not met this target rate for several years, the policy has not changed as of July 2025, based on available data.)

Next are the sources of the example figures. (You can reload the calculator to follow along, then enter your own figures for a personalized analysis.)

1. Loan Amount: In November 2023 (reported June 13, 2024), the average new FHA mortgage balance was $400,150 (source: Mortgage Bankers Association). With a 20% down payment, the calculator will determine the purchase price.
2. Annual Interest Rate: As of July 24, 2025, the average 30-year fixed mortgage rate was approximately 6.74%, according to Freddie Mac’s Primary Mortgage Market Survey via FRED.

Now, from the Options tab:

3. Annual Property Taxes: Using a national average effective rate of 0.98% (source: tax-rates.org), the estimated property tax is $3,190.

Additional assumed costs:

4. Annual Maintenance: $3,000
5. Annual Insurance Premium: $800

If you pay HOA fees, add the annual amount to the maintenance cost for a more accurate ROI.

Based on these figures, the estimated ROI is:

This result may appear modest. Why is buying a home still often considered a good investment?

This analysis is not yet complete and you still need a place to live.

Buy vs. Rent

If the alternative is renting, that cost must be included in the analysis.

This is because rent has no investment return. It is a 100% cash outflow: no equity, no asset, and no gain.

To make the comparison consistent, the calculator offsets homeownership costs by the amount you would otherwise spend on rent. It computes ROI based only on your “marginal” spending—the additional cost of owning versus renting.

Apply this logic using the following example.

As of June 2018, the average U.S. rent for a three-bedroom unit was $1,714 per month (source: RENTCafe). Entering that value into the rent field yields:

That is a substantial difference. The calculator now shows a 10.1% return on your investable dollars, after accounting for rent you would have paid.

This is higher than the S&P 500’s 30-year average return of 5.9% (excluding dividends).

If you are still unsure about buying, consider the following chart:

If projections hold, after 30 years of payments, taxes, and maintenance, you will own an asset valued at roughly $1,055,000.

How much value will you recover from rent payments?

You earn a return on the dollars you invest. You also retain the full value of your housing costs.

In addition, homeownership has two more long-term financial advantages:

• A fixed-rate mortgage locks in a stable monthly cost, unlike rent, which may rise over time.
• Once the mortgage is paid off, your monthly housing costs drop significantly—a benefit that renting cannot offer.

The following cautions apply:

• Real estate values vary by location. Your ROI depends heavily on the local market and on your assumptions.
• Interest rate changes can significantly affect mortgage cost and ROI. Always run your own scenario.
• If you plan to sell before the loan term ends, ROI will change. To test this, adjust the Number of Payments to your expected holding period (for example, 96 for eight years) and recalculate.

The purpose of this example is not for you to agree with the specific numbers. The goal is to give you the tools and background to run your own analysis.

The Accurate Mortgage Calculator is flexible enough to support nearly any home buying scenario. Use it to answer the question: “Is buying a house a good investment for me?”

At this point, you may be inclined to buy a home. There is a way to improve your ROI.

Consider making extra payments or reviewing the mortgage-saving tips in the next section.

Most borrowers understand that making payments above the required mortgage amount will save money over the life of the loan. Check your loan terms to confirm that there is no prepayment penalty.

How does paying extra on your mortgage work? Why does it save you money? See the mortgage calculator with extra payments.

The explanation is straightforward. On a traditional mortgage, interest is calculated based on the loan balance and the number of days since the last payment. The calculated interest is added to the balance, and the total payment amount is subtracted.

If you pay an additional $200, that full amount is applied directly to reduce the principal (assuming the lender applies it correctly). For your next payment, interest is calculated on a balance that is $200 lower than it would have been otherwise.

The lower the principal balance, the less interest is charged.

Although $200 is small compared with a $250,000 mortgage, that extra payment reduces the loan balance permanently—from the date of payment through the loan’s remaining term. It saves interest on every remaining payment. If you continue making extra payments, the benefit compounds.

Over time, this results in substantial interest savings. How much?

What is the effect of paying down extra principal?

Assume you receive a year-end bonus and want to apply $10,000 as a one-time payment toward your mortgage. How much will you save in interest?

Using this calculator’s default values, a single $10,000 extra payment will save more than $23,000 in future interest charges.

Is it a Good Idea to Make Extra Mortgage Payments?

There is ongoing debate among financial professionals and homeowners about whether prepaying a mortgage is the best use of funds. Some argue that investing those funds could yield a higher return than the interest savings.

This site does not provide financial advice, and the Accurate Mortgage Calculator does not determine which choice is better. It calculates your potential interest savings from extra payments.

That calculator also provides—and this one does not—a side-by-side financial schedule. It shows not only the interest savings but also the projected future value had you invested the extra funds instead.

If you are currently making, or planning to make, additional principal payments, this tool may help you evaluate this decision.

If you are unsure that you want to prepay your mortgage, you may want to consider other ways to reduce your costs.

Other cost-saving options appear in the next section.

Mortgage payments usually account for a significant share of a household’s monthly budget—often 25% or more of income. Many borrowers know that making extra payments or switching to a biweekly payment plan can substantially reduce total interest over the life of the loan. These strategies can be effective, depending on your overall financial priorities.

What if you do not have additional cash to apply toward your mortgage? Are there other ways to save without increasing your payments?

Yes. The two tips below are worth considering. Use the calculator to test your own figures and estimate your potential savings.

TIP 1: Do Not Assume a Larger Down Payment Always Saves More

The common assumption is simple: a larger down payment means a smaller loan and less total interest. That is usually true. However, U.S. mortgage borrowers have another option: paying points.

Points are an up-front fee paid to the lender in exchange for a lower interest rate. The fee is calculated as a percentage of the loan amount. For example, on a $300,000 loan, 2.5 points equal $7,500.

If you plan to remain in your home for at least 12 years, points may be worth evaluating. But what if you do not have cash available to pay points at closing?

You may still have other options.

You Can Trade Part of the Down Payment for Points

Do you have 20% or more available for a down payment?

If so, it may be more cost-effective to reduce the down payment slightly and use the difference to pay points instead. Consider the following example.

In the calculator, enter:

1. Price of Real Estate or Asset: $375,000.00
2. Down Payment Percent: 22%
3. Loan Amount: $0
4. Number of Payments: 360
5. Annual Interest Rate: 4.125%
6. Payment Amount: $0
7. Points: 0

Because we are comparing loan strategies only, set these fields to zero: “Annual Property Taxes,” “Annual Insurance,” and “Private Mortgage Ins. (PMI).” (mortgage calculator with PMI)

With zero values for both loan amount and payment amount, the calculator will compute them automatically.

The key figure is total interest. At the bottom of the calculator, just above the buttons, the total interest is $217,836. Make a note of that value.

Now adjust the inputs as follows (leave the others unchanged):

1. Down Payment Percent: 20%
2. Mortgage Amount: $0 (reset)
3. Annual Interest Rate: 3.875%
4. Payment Amount: $0 (reset)
5. Points: 2.00 (on the “Options” tab)

Reducing the down payment by 2% and adding 2 points lowers the interest rate. In this example, the rate decreases by 0.25%. In your market, the discount may be larger—perhaps 0.333% or even 0.40%.

Next, click “Pmt & Cost Schedule.” You do not need to click “Calc” first.

Locate these two values in the summary:

• Points Amount: $6,000
• Total Interest & Points Paid: $213,856

Compare this with the earlier amount of $217,836. The 20% down loan with 2 points saves $3,970 compared with the 22% down loan with no points.

There are additional benefits:

• No extra paperwork or approval requirements
• No additional cash needed
• Lower monthly payment: $1,410 instead of $1,417

There is more.

If you itemize deductions on your U.S. federal income tax return, mortgage points may be deductible. In the 33% tax bracket, $4,000 in points could reduce your tax bill by approximately $1,320 in the year the mortgage is originated. (See the “Tax Impact” section on this page for limitations.)

This strategy can provide multiple benefits:

• Lower total mortgage cost
• Lower monthly payment
• No change to underwriting or approval
• Potential up-front tax deduction

The following cautions apply:

• Use this strategy only if you expect to stay in the home long term. If you sell within 5–10 years, the savings may not offset the cost of points.
• You will have slightly less early equity due to the smaller down payment.

You can evaluate whether this tip is appropriate for your situation.

The next tip may provide even more benefit.

TIP 2: Make Payments at the “Start-of-Period” to Save

Lenders may not prefer this approach because it reduces their ROI, but borrowers should understand it.

During the application process, lenders require bank statements to verify that you can cover at least one or two months of payments in addition to your down payment.

At this point, timing becomes important.

Typically, your first payment is due on the first day of the second month after closing. For example, if you close on March 20, your first payment is due on May 1. What if, instead, you make your first payment on the closing day?

Why consider doing this?

Enter the following values in the calculator:

1. Price of Real Estate or Asset: $350,000.00
2. Down Payment Percent: 20%
3. Mortgage Amount: $0
4. Number of Payments: 360
5. Annual Interest Rate: 4.125%
6. Payment Amount: $1,417.60
7. Points: 0.00%
8. Payment Frequency: Monthly
9. Set the Loan Date and First Payment Due one month apart
10. Set “Annual Property Taxes,” “Annual Insurance,” and “PMI” to zero

The calculator will determine the loan amount and amortization.

Click “Payment & Cost Schedules.”

Total interest is $208,527. This reflects an “end-of-period” schedule, where the first payment is due one month after the loan date.

Now change the following:

1. Mortgage Amount: $0 (reset)
2. Number of Payments: 0 (reset)
3. Set the Loan Date and First Payment Due to the same date

This converts the schedule to a “start-of-period” structure. Click “Payment & Cost Schedules” again.

Notice that the first payment now occurs on the loan date, and no interest is charged for that period. No time has elapsed, and interest accrues only for days the funds are outstanding.

Total interest is now $205,236.

You save $3,291 in interest over the life of the loan by making your first payment on the loan date. You will also make 258 payments instead of 360. The final payment moves to February 1, 2047, instead of May 1, 2047.

This approach requires no special procedure. Provide the first payment at closing.

Important: This first payment should include only the principal and interest—not escrow amounts for taxes or insurance. Escrow is handled separately.

After closing, review your lender’s payment history to verify that the first payment was applied entirely to principal. Otherwise, some of the benefit may be lost.

In the U.S., adjustable-rate mortgages (ARM) have become less common among borrowers. In a low-interest-rate environment, it is usually not advantageous to select a mortgage whose interest rate is more likely to rise than to fall.

The UMC does not officially support ARMs.

However, if you need an amortization schedule for an adjustable-rate mortgage, you still have options. See the Adjustable Rate Mortgage Calculator. This tool lets you create an ARM schedule and change the interest rate on any date, including dates that are not scheduled payment dates. A step-by-step ARM tutorial is included.