The Mortgage Center @ AccurateCalculators.com

Introduction

Taking out a mortgage can feel stressful, even if it’s not overwhelming. The Mortgage Center @ Financial-Calculators.com provides background information designed to support you throughout 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 owned assets, and home equity is a large contributor to household wealth:

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

If you’re undecided about buying a home, the information below will help you make an informed decision.

This guide covers the following topics:

• The key to 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 that mean in practical terms?

Very broadly, lending falls into two categories:

• A lender may provide funds based on your creditworthiness (or for personal reasons, such as trust or relationship). For example, credit card issuers extend credit based on your repayment history. If you fail to repay, the lender cannot seize your property. This type of loan 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 (fails to pay).

You should use the APR to compare mortgage offers.

In the U.S., the APR is one of the few lending-related figures that is regulated by the federal government (see the Truth in Lending Act, or TILA). Some people assume the government regulates payment amounts, but that is not the case. A lender can generally offer any payment amount, as long as the borrower agrees to the terms.

However, the APR is different. The APR is not simply an interest rate. It is a rate of return, and the TILA explicitly defines how it must be calculated. (The Act does not establish minimum or maximum APR values.) The Consumer Financial Protection Bureau (which assumed this role from the U.S. Federal Reserve) oversees compliance with the TILA.

The APR benefits borrowers. Since the TILA was enacted in 1968, mandating a standardized method for calculating APR, it has become easier for consumers to compare loan offers consistently. Before this disclosure requirement, borrowers often had to compare only mortgage interest rates or payment amounts—then try to factor in fees and charges on their own.

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

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

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

As useful as the APR is for comparing loans, it has a limitation: The APR is a personal number. That is, consumers cannot reliably compare lenders based solely on advertised APRs. These figures are starting points only.

Several factors influence your personal APR, including the payment amount quoted, fees, and other charges. Required inspection reports, attorney’s fees, and loan application fees are also part of the calculation. Because these costs vary by lender, your APR will also vary from one lender to another.

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

So how do you calculate an APR?

The Accurate Mortgage Calculator performs the APR calculation for you. However, to ensure the result is correct, you must supply the following information:

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

(Note: Optional charges not required by the lender—such as an upgraded septic tank inspection—are excluded from the APR calculation.)

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

Why not? Why would anyone choose a loan with a higher APR?

As noted above, the APR is a “personal number.” For example, a 30-year loan’s APR is calculated based on the assumption that the loan will be repaid over the full 30-year term. The same logic applies to a 15-year mortgage or any other loan term.

But your actual plans may differ. If you intend to sell the property before the loan term ends, the calculated APR will not reflect your real cost. That’s because you pay fees and other charges up front, and when the loan is repaid early, those fees have a proportionally greater impact on your effective APR.

In general, the shorter the time you hold the loan, the higher the impact of fees—raising your actual APR. For example, if you pay points to lower your interest rate and this appears to reduce your APR compared to another offer, that may only hold true if you keep the loan for its full term. If you expect to sell the home sooner, a loan with a slightly higher APR but lower up-front fees 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 (i.e., 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. The One Big Beautiful Bill Act of 2025 introduced new deduction rules. As a result, the calculator may overstate the benefit in some cases, 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. It 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 the Thomson 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 in the calculator for those who qualify and understand the limitations described above.

In general, yes — it often is.

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

Looking at those figures, you might think the conclusion is obvious — that buying a home is a good investment and financing it with a mortgage makes sense. But home price appreciation is only one factor. We need to examine a few more considerations before we can reach a reliable conclusion.

To do that, we need a consistent way to measure investment performance. Specifically: what number tells us if a mortgage is a good investment?

If you're already familiar with ROI, feel free to skip ahead to How Do I Calculate the ROI?

The Key Number to Understand: ROI

Return on investment (ROI), sometimes also called rate of return (ROR) or internal rate of return (IRR), tells you 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%.

But “annualized” is key. 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.)

That’s because receiving money earlier in the timeline improves the return — it's more valuable to get a portion of your return sooner.

The takeaway: 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 versus 30-year mortgages, or any loan term you choose.

That’s why the UMC calculates ROI — to help you determine 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 you will earn a return on the purchase.

How Do I Calculate the ROI?

This calculator performs the math for you — but you’ll still need to make some key decisions:

• Which expenses do you want to include in the analysis? Just the 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 has 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 follow below.)

For this example, we’ll 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, etc.), we’ll use 2%. According to the Federal Reserve Bank of St. Louis, “the FOMC adopted an explicit inflation target of 2% in January 2012.” (Though the Fed has missed their target rate for a few years, the policy has not changed as of July 2025.)

Next, here’s where the example figures come from. (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 an accurate ROI.

Based on these figures, the estimated ROI is:

That result may seem underwhelming. Why, then, is buying still often considered a good investment?

Because this analysis is not yet complete — and you need a place to live.

Buy vs. Rent

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

Why? Because rent has no return. In fact, it's a 100% outflow. No equity, no asset, no gain.

To make the comparison fair, 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.

Let’s apply this logic.

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

That's a dramatic difference. The calculator now shows a 10.1% return on your investable dollars — after accounting for rent you would have paid.

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

Still unsure about buying?

Then consider this:

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

How much value will you recover from rent payments?

You not only earn a return on your invested dollars — you also retain the full value of your housing costs.

Plus, homeownership has two additional 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.

A few words of caution.

• Real estate values vary by location. Your ROI depends heavily on the local market and 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 (e.g., 96 for eight years) and recalculate.

Ultimately, the goal isn’t to agree with the example numbers — it’s 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?”

Alright — you're leaning toward buying. Is there any way to improve your ROI?

Yes. There is.

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

Most borrowers likely understand that making payments above the required mortgage amount will save them money. (Check your loan terms to ensure there is no prepayment penalty.)

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

The explanation is simple. 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.

While $200 may seem small compared to a $250,000 mortgage, that extra payment reduces the loan balance permanently — from the date of payment through the loan’s full remaining term. It saves interest on every remaining payment. And if you continue making extra payments, the benefit compounds.

This adds up to real savings. So, 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 over $23,000 in future interest charges.

Is it a good idea to make extra mortgage payments?

There’s ongoing debate among financial professionals and homeowners on whether prepaying a mortgage is the best use of money. Some argue that investing those funds could yield a higher return than what you’d save in interest.

This site doesn’t offer financial advice, and the Accurate Mortgage Calculator doesn’t determine which is the better option. What it does do is calculate your potential interest savings from extra payments.

What that calculator also provides — and this one does not — is 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're currently making or planning to make additional principal payments, this tool is worth reviewing.

Still not sure you want to prepay your mortgage? Are there other ways to reduce your costs?

Yes, there are.

Mortgage payments usually make up a significant part of a household's monthly budget. Often, a mortgage consumes 25% or more of monthly income. Many borrowers know that making extra payments or switching to a bi-weekly payment plan can save a substantial amount of interest over the life of the loan. These strategies can be effective, depending on your other financial options.

But what if you don’t have extra cash to apply toward your mortgage? Are there other ways to save without increasing your payments?

Yes — there are. Read on for two practical ideas. Be sure to test your own numbers in the calculator to estimate your potential savings.

TIP 1: Don’t Assume a Larger Down Payment Saves More

The common assumption is: the more you put down, the smaller the loan — and the less total interest paid. That’s usually true. But in the U.S., mortgage borrowers have another option: paying points.

Points are an upfront 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 stay in your home for at least 12 years, points can be worth considering. But what if you don’t have cash available to pay points upfront?

Maybe you still do.

You Can Swap 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 your down payment slightly and use the difference to pay points instead. Let’s look at an example.

In the calculator, enter the following values:

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

Since we’re comparing only mortgage strategies, 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 number is total interest. At the bottom of the calculator (just above the buttons), you’ll see the total interest is $217,836. Note 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 (under “Options” tab)

Reducing the down payment by 2% and adding 2 points buys a lower interest rate. In this example, the rate drops by 0.25%. In your market, the discount could be larger — 0.333% or even 0.4%.

Now click “Pmt & Cost Schedule.” (You don’t need to click “Calc” first.)

Look for these two figures in the schedule summary:

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

Compare that to the earlier figure of $217,836. The second option — 20% down with 2 points — saves $3,970 over the 22% down loan with no points.

And it gets better:

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

There’s 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 $1,320 in the year you take out the mortgage. (See the “Tax Impact” section on this page for limitations.)

It’s a win-win-win-win:

• Lower total mortgage cost
• Lower monthly payment
• No change to the loan approval process
• Possible up-front tax deduction

A few cautions:

• Only consider this strategy if you plan to stay in the home for a long time. If you sell in 5–10 years, the savings may not justify the cost of points.
• You’ll have slightly less equity in the early years of the loan because of the smaller down payment.

What do you think of this tip? Will you consider using it?

The next one might be even better…

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

Lenders dislike this tactic (it affects their ROI), but borrowers should appreciate it.

During the loan application process, lenders will request recent bank statements. They’re looking to confirm you have funds to cover at least one or two months of payments in addition to your down payment.

Here’s where it gets interesting.

Typically, your first mortgage 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 May 1. But what if, instead, you make your first payment on the closing day?

Why do 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 compute loan amount and payment based on your inputs.

Click “Payment & Cost Schedules.”

Note the total interest: $208,527. This is based on an “end-of-period” schedule (first payment due one month after 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 switches the loan to a “start-of-period” structure. Click “Payment & Cost Schedules” again.

Notice: the first payment now occurs on the loan date — and no interest is due for that period. Why? Because no time has passed, and interest only accrues for days the money is on loan.

Total interest is now $205,236.

You save $3,291 in interest over the life of the loan — just by making your first payment on the loan date. You’ll also make only 258 payments instead of 360. Your final payment moves up to February 1, 2047, instead of May 1, 2047.

This strategy requires no special process. Just provide the first payment at closing.

Important: This first payment should cover only the mortgage portion — not any escrow amounts (for taxes or insurance). Escrow is handled separately.

After closing, monitor your mortgage account to confirm the first payment was applied entirely to principal. If not, the full benefit may be lost.

In the U.S., adjustable-rate mortgages (ARM) have largely fallen out of favor with borrowers. In today’s low-interest-rate environment, it usually does not make sense to take out a mortgage with an interest rate that is more likely to rise than fall.

The UMC does not officially support ARMs.

However, if you need to create an amortization schedule for an adjustable-rate mortgage, you're not out of luck. See the Adjustable Rate Mortgage Calculator. This tool allows you to build an ARM schedule where you can change the interest rate on any date — not just scheduled payment dates. A step-by-step ARM tutorial is also included to help you through the process.