Calculation Methodology
We believe in full transparency. This page outlines the mathematical formulas, data sources, and assumptions used to generate the estimates on this website.
1. The Core Formula
To calculate the monthly Principal and Interest (P&I) payment, we use the standard amortization formula used by most U.S. lenders:
- M: Total monthly payment.
- P: Principal loan amount.
- i: Monthly interest rate (Annual Rate ÷ 12).
- n: Total number of payments (Loan Term in Years × 12).
2. Data Sources for Estimations
While you can customize every input, we provide "smart defaults" to help you get started. These defaults are based on aggregated market data.
- Interest Rates: Our baseline interest rates are derived from national averages reported by major housing agencies (like Freddie Mac) and market indices. We aim to update these baselines regularly to reflect current market conditions.
- Property Taxes: The "State Selector" feature uses average effective property tax rates based on recent census data and tax foundation reports for each US state.
- Insurance & PMI: Default values for Home Insurance (e.g., 0.5%) and PMI (e.g., 0.5%-1.0%) are based on typical industry standards for standard risk profiles.
3. Credit Score Impact
Your credit score is a primary factor in the interest rate a lender will offer you. Our calculator adjusts the estimated rate based on the credit tier you select:
- Excellent (760+): Typically qualifies for the lowest advertised rates.
- Good (700-759): May see rates slightly higher (e.g., +0.25%) than the "headline" rate.
- Fair (620-699): Lenders often apply "loan-level price adjustments" (LLPAs), which can increase the rate by 0.5% to 1.5% or more compared to the best available rate.
4. Updates & Accuracy
We strive to keep our default values current, but the mortgage market changes daily. The rates shown are for estimation purposes only and do not represent a guaranteed offer of credit. Your actual rate will depend on your specific lender, debt-to-income ratio, and full financial profile.