Question 1

How is a monthly mortgage payment calculated?

Accepted Answer

Monthly Payment M = P × [r(1 + r)^n] / [(1 + r)^n − 1], where P is the loan amount, r is the monthly interest rate (annual rate ÷ 12), and n is the total number of payments (loan term in years × 12). This produces a fixed payment that covers both principal and interest throughout the term.

Question 2

How much do extra mortgage payments save?

Accepted Answer

The savings are substantial. On a $300,000 mortgage at 4.5% for 30 years, paying an extra $200/month saves approximately $46,000 in interest and cuts 5 years off the loan. Extra payments made early save the most, since they reduce the principal on which all future interest is charged.

Question 3

What is the difference between a 15-year and 30-year mortgage?

Accepted Answer

A 15-year mortgage has higher monthly payments but pays 50–60% less total interest than a 30-year loan. A 30-year mortgage offers lower payments and cash-flow flexibility. Use this calculator to compare the total cost of each option for your loan amount and rate.

Question 4

What is PMI and when can I cancel it?

Accepted Answer

Private Mortgage Insurance (PMI) is required when your down payment is less than 20%. It typically costs 0.5–1.5% of the loan amount annually. Under the Homeowners Protection Act, you can request PMI cancellation when your equity reaches 20%, and it must be automatically cancelled at 22%.

Question 5

Should I pay points to lower my mortgage rate?

Accepted Answer

One point = 1% of the loan amount paid upfront to reduce your rate by ≈0.25%. Calculate break-even: Upfront Cost ÷ Monthly Savings = Break-even Months. If you plan to keep the mortgage longer than the break-even period, paying points saves money overall.

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