Mortgage Advisor — Get a Smart Mortgage Plan in Seconds

Your monthly mortgage payment is built from four parts, often called PITI: principal, interest, taxes and insurance. Principal and interest are calculated using the standard amortisation formula 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 monthly payments (years × 12).

In the early years of a mortgage most of each payment goes to interest, and only a small slice pays down the principal. As the balance shrinks the interest portion drops and more of every payment chips away at what you actually owe. That is why making even small extra principal payments in the first few years can shave years off the loan and tens of thousands off the total interest. The Mortgage Advisor uses this same formula behind the scenes, then layers in property tax and homeowners insurance estimates so you see a realistic monthly number — not just principal and interest.

Affordability is not the maximum loan a bank will approve — it is the payment you can comfortably carry through job changes, rate hikes, a new baby, or a slow year. Two common rules of thumb are useful: the 28/36 rule (housing costs ≤ 28% of gross monthly income, total debt ≤ 36%) and the 25% rule (total housing costs on a 15-year fixed ≤ 25% of take-home pay).

Lenders also stress-test your application against higher hypothetical rates to make sure you would not default if rates rise. You should do the same. Run the calculator at your quoted rate, then again 1–2 percentage points higher. If the higher payment would force you to skip retirement contributions, drain savings or rely on credit cards, you are buying too much house. The Mortgage Advisor flags this automatically and suggests a price range that fits your real budget instead of the maximum loan you qualify for.

Debt-to-income ratio (DTI) is the share of your gross monthly income that goes to debt payments — the proposed mortgage plus car loans, student loans, minimum credit-card payments and child support. Most conventional lenders want a DTI under 43%, and the best rates usually require under 36%. FHA loans can stretch up to about 50% in some cases, but a high DTI almost always means a higher interest rate.

A low DTI is your single biggest negotiating asset. It signals you can absorb a rate shock or a temporary income drop. If your DTI sits above 36%, two strategies usually beat raising your down payment: pay down the highest-rate debt aggressively for 6–12 months, or extend the loan term to lower the monthly payment. The Debt Payoff Planner can show which approach saves you more before you apply.

Your down payment changes three things at once: the size of the loan, your monthly payment, and whether you have to pay private mortgage insurance (PMI). On a conventional loan, putting down less than 20% triggers PMI of roughly 0.3%–1.5% of the loan amount per year, paid monthly until you reach 20% equity. On a $350k home with 5% down, that is often $100–$250 a month of pure cost with no return.

A bigger down payment also unlocks better rates. Lenders see more skin in the game as lower risk, and many offer the best pricing tiers at 20% or 25% down. The trade-off is opportunity cost: if your mortgage rate is 6% but you could earn 8% in a diversified index fund over 20 years, every extra dollar of down payment is also a dollar not invested. There is no universally right answer — the Mortgage Advisor helps you compare scenarios side by side instead of guessing.

Two mortgages with the same headline rate can have very different true costs. Always compare the Annual Percentage Rate (APR), not just the interest rate — APR includes lender fees, points and certain closing costs, so it reflects the all-in cost of borrowing. A loan with a slightly higher rate but no points and no origination fee is often cheaper than a flashy low-rate offer with $6,000 in fees, especially if you might refinance or move within 7 years.

Next, decide between fixed and adjustable-rate mortgages (ARMs). A 30-year fixed locks in your payment for the life of the loan and is the safe default in most environments. A 5/1 or 7/1 ARM offers a lower rate for the intro period but resets afterward — only worth it if you are confident you will sell or refinance before the reset. Finally, get loan estimates from at least three lenders within a 14–45 day window. Credit bureaus treat multiple mortgage inquiries in that window as a single inquiry, so shopping around does not hurt your score. Use the Mortgage Advisor's recommendations as your shortlist, then negotiate fees — they are almost always negotiable.