This calculator is designed to provide an accurate estimate of monthly mortgage payments, adhering to principles of financial sobriety and long-term debt elimination.
Welcome to the Ramsey Mortgage Calculator. Use this tool to quickly determine your total monthly payment based on the principal amount, interest rate, and term. Understanding your true monthly cost is the first step toward achieving financial peace.
Ramsey Mortgage Payment Calculator
Ramsey Mortgage Calculator Formula
The calculation is based on the standard monthly amortization formula for the Principal and Interest (P&I) payment:
$$ M = P \left[ \frac{i(1 + i)^n}{(1 + i)^n – 1} \right] $$
Where:
$$ \text{Total Monthly Payment} = M + \frac{\text{Annual Tax}}{12} + \frac{\text{Annual Insurance}}{12} $$
Formula Sources: Investopedia: Amortization | Bankrate: Mortgage Payment Calculation
Variables Explained
The calculator uses the following variables to determine your final monthly cost:
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What is the Ramsey Mortgage Calculator?
This calculator helps you align your home financing decisions with the core principles of financial freedom advocated by Dave Ramsey. Unlike conventional advice that often promotes the maximum debt load, this tool is geared towards clarity, minimizing debt, and prioritizing the 15-year fixed-rate mortgage.
The focus is on providing a realistic, total monthly payment, including the often-overlooked escrow components (Taxes and Insurance), so you can budget accurately and ensure the payment fits comfortably within your debt-free plan. Ramsey’s advice often suggests avoiding a monthly payment that exceeds 25% of your take-home pay on a 15-year term.
How to Calculate the Monthly Payment (Example)
Let’s use an example to walk through the calculation:
- Gather Variables: Assume $P = \$200,000$, $I = 6.0\%$, $N = 15$ years. Annual Tax is $\$2,400$, and Annual Insurance is $\$600$.
- Calculate Monthly Rate ($i$): $i = (6.0\% / 100) / 12 = 0.005$.
- Calculate Total Payments ($n$): $n = 15 \times 12 = 180$.
- Calculate P&I Payment ($M$): Plug the values into the amortization formula. $M = \$200,000 \left[ \frac{0.005(1.005)^{180}}{(1.005)^{180} – 1} \right] \approx \$1,687.71$.
- Calculate Monthly Escrow: Monthly Tax = $\$2,400 / 12 = \$200$. Monthly Insurance = $\$600 / 12 = \$50$.
- Calculate Total Monthly Payment: Total Payment = $\$1,687.71 + \$200 + \$50 = \$1,937.71$.
Frequently Asked Questions (FAQ)
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Why does Dave Ramsey recommend a 15-year mortgage over a 30-year mortgage?
The primary reason is the massive amount of interest saved and the speed at which you become debt-free. A 30-year loan keeps you in debt (and paying interest) for twice as long, drastically increasing the total cost of the home.
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What down payment is recommended?
Ramsey recommends a minimum 20% down payment to avoid Private Mortgage Insurance (PMI) and to reduce the overall principal, making the debt load more manageable.
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Does this calculator include Private Mortgage Insurance (PMI)?
No. This calculator is designed assuming a 20% or greater down payment, which eliminates the need for PMI. If your down payment is less than 20%, you should manually include the estimated PMI cost into the “Annual Home Insurance” field for a rough total.
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What happens if I make extra payments?
This calculator shows the *minimum* required monthly payment. Extra principal payments are not reflected here, but they can be tracked using an Amortization Schedule Builder to see how they reduce the loan term and total interest paid.