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How we calculate

Last reviewed October 2026

Every calculator on RealEstateCalculator.org runs the same published formulas in your browser. Nothing is estimated by an AI model, and nothing you type is sent to us. All of the math lives in one shared code package, and automated tests check it against known reference values before every release. This page explains the formulas, the default assumptions, and what the estimates don't include.

These are estimates for planning, not loan offers. Lenders set rates, fees and approval rules, and your numbers will differ. Partner links never change a result. See how we make money.

Mortgage payment

Principal and interest use the standard fixed-rate amortization formula that lenders use:

Payment = L × r × (1 + r)n ÷ ((1 + r)n − 1)

L is the loan amount (price minus down payment), r is the annual rate ÷ 12, and n is the number of monthly payments (years × 12). At a 0% rate the payment is simply L ÷ n. The full monthly payment adds property tax ÷ 12, homeowners insurance ÷ 12, HOA dues and any mortgage insurance.

Amortization schedule

Each month, interest is the remaining balance × r. The rest of the principal-and-interest payment reduces the balance. The yearly table sums twelve months. Biweekly schedules use half the monthly payment, 26 times a year, with interest at the annual rate ÷ 26. That works out to 13 monthly payments a year and pays the loan off early.

Mortgage insurance

  • Conventional PMI applies when the down payment is under 20%. We charge it as an annual percent of the original loan (0.5% by default; yours depends on credit and down payment). It ends automatically when the scheduled balance reaches 78% of the original home value, or at the midpoint of the loan term if that comes first, as the Homeowners Protection Act requires. You can ask to cancel at 80%, which we don't model because it requires a request, a good payment history and sometimes an appraisal.
  • FHA annual MIP defaults to 0.55% for less than 5% down. For terms over 15 years, HUD's current rates are 0.50% to 0.55% on loans up to $726,200 and 0.70% to 0.75% above that. MIP lasts 11 years with at least 10% down and the life of the loan otherwise.
  • VA loans have no monthly mortgage insurance.
  • USDA loans charge an annual guarantee fee for the life of the loan, entered as a percent.

Refinance

We compare the payment left on your current loan with the payment on the new one. Monthly savings is the difference. Break-even is closing costs ÷ monthly savings, rounded up to whole months. Lifetime savings compares all payments left on the current loan with all payments on the new loan, plus closing costs paid in cash. If you roll costs into the loan, they're added to the new balance instead. A longer new term can lower the payment and still cost more overall; the calculator shows both.

How much house you can afford

Lenders compare your monthly debts with your gross monthly income. That's the debt-to-income ratio (DTI). Limits vary by lender and loan type. Our main estimate uses the common 28/36 guideline: the full housing payment stays under 28% of gross monthly income, and housing plus other debts stays under 36%. You can change both. We find the highest price whose full payment, including tax, insurance, HOA and PMI, fits both limits. The "stretch" figure allows housing plus debts up to 43% with no separate housing limit, which some lenders approve.

Mortgage payoff and extra payments

Extra monthly payments and a one-time lump sum go straight to principal. The required payment stays the same. We run the schedule with and without the extra money and compare the months and total interest.

Rental property, cap rate, DSCR and cash-on-cash

  • Effective income = (rent + other income) × 12, minus vacancy.
  • Operating expenses = property tax + insurance + HOA + utilities + repairs and capital expenses (each a percent of gross rent) + management (a percent of collected income).
  • NOI (net operating income) = effective income − operating expenses. NOI leaves out the mortgage.
  • Cap rate = NOI ÷ purchase price.
  • Cash flow = NOI − annual principal and interest.
  • Cash-on-cash return = annual cash flow ÷ cash invested (down payment + closing costs + repairs at purchase).
  • DSCR: most DSCR lenders divide monthly rent by PITIA (principal, interest, taxes, insurance and HOA). We show that as the main figure. We also show the NOI-based version (NOI ÷ annual debt service) that commercial lenders use. A cash purchase has no DSCR.

Default investor assumptions are 5% vacancy, 5% of rent for repairs, 5% for capital expenses and 8% for management. They're starting points; change them to match the property. Depreciation and taxes aren't included. The IRS depreciates residential rental buildings over 27.5 years, and land isn't depreciable.

Rent vs. buy

We follow both choices month by month for the years you plan to stay. The buyer pays the down payment and closing costs up front, then the mortgage, property tax, insurance, HOA dues, PMI and maintenance. Tax and maintenance are percentages of the home's value; tax, insurance, HOA and maintenance rise with the home's value each year. The renter pays rent and renters insurance, which rise by the rent increase rate. The renter invests the down payment and closing costs, and each month whichever choice costs less invests the difference at the investment return you set. At the end, the buyer's net worth is the home's value minus selling costs and the loan balance, plus their investments. The break-even year is the first year buying comes out ahead. Income taxes aren't modeled.

Closing costs, down payment and DTI

  • Closing costs add each line you enter. Percent-based items use the loan (origination, points) or the price (title, transfer tax). Prepaid interest is loan × rate ÷ 365 × days. The escrow deposit is the monthly tax or insurance times the months you enter.
  • Down payment: cash to close is the down payment plus closing costs as a percent of price. Time to save adds your monthly savings each month and compounds interest monthly.
  • Debt-to-income is monthly debt payments ÷ gross monthly income. Back-end DTI includes housing and all other debts; front-end DTI is housing alone.

Home equity, HELOC, cash-out refinance and recast

  • Borrowing limit = home value × the lender's combined loan-to-value limit − your current mortgage balance.
  • Home equity loan payments use the standard fixed-rate formula.
  • HELOC: we assume the full amount is drawn at the start. The draw-period payment is interest only (balance × rate ÷ 12), and the repayment payment amortizes the balance over the repayment period. We assume the rate stays the same, though most HELOC rates are variable.
  • Cash-out refinance: closing costs are added to the loan, so the new loan = (balance + cash) ÷ (1 − closing cost %). The most cash available is the lender's maximum loan × (1 − closing cost %) − your balance.
  • Recast: the new payment re-amortizes the balance after the lump sum over the same remaining term at the same rate. The prepay comparison keeps the old payment and runs the schedule to payoff.

BRRRR and fix-and-flip

  • Short-term loans (hard money) are assumed fully drawn from the start and interest-only for the whole hold, which slightly overstates interest when rehab money is drawn in stages. Points are a percent of the loan.
  • BRRRR: cash in = purchase + closing + rehab + holding costs + short-term interest and points − the short-term loan. Cash back at refinance = ARV × refinance loan-to-value − refinance closing costs − the short-term loan payoff. Cash left in = cash in − cash back. Cash flow, NOI and DSCR after the refinance use the rental formulas above, and cash-on-cash is annual cash flow ÷ cash left in.
  • Fix-and-flip: profit = ARV − purchase − buying costs − rehab − holding costs − interest − points − selling costs. Return on cash = profit ÷ cash needed before the sale; annualized return = (1 + return)12 ÷ months − 1. The 70% rule figure is ARV × 70% − rehab.

What the estimates don't include

  • Closing costs on the mortgage pages, and points or lender credits on any page.
  • FHA upfront MIP (1.75% of the base loan, usually added to the loan), the VA funding fee and the USDA upfront fee.
  • Adjustable-rate loans, interest-only periods and balloon payments.
  • Changes in property tax, insurance, HOA dues or rent over time.
  • Income taxes, the mortgage interest deduction and depreciation.
  • Your credit score, location and lender pricing. Rates on our pages are inputs you choose, not quotes.

Testing and corrections

The calculation package has automated tests with known reference values, such as $2,275.44 a month for $360,000 at 6.5% over 30 years. Every change has to pass them before it goes live. If you find a result you think is wrong, email [contact email] with the inputs (the "Copy link" button captures them) and we'll check it.

Sources