85 15 Mortgage Calculator
'/%3E%3Ccircle cx='48' cy='39' r='19' fill='%23f2c9a5'/%3E%3Cpath d='M27 35c3-16 39-17 42 2-8-8-27-9-42-2z' fill='%23374151'/%3E%3Cpath d='M21 86c5-24 49-28 56 0z' fill='%232563eb'/%3E%3Ccircle cx='41' cy='41' r='2' fill='%23111827'/%3E%3Ccircle cx='55' cy='41' r='2' fill='%23111827'/%3E%3Cpath d='M42 52c4 3 9 3 13 0' stroke='%2392400e' stroke-width='3' fill='none' stroke-linecap='round'/%3E%3C/svg%3E)
Reviewed by Calculator Editorial Team
The 85/15 mortgage rule is a popular strategy among homebuyers to save on interest payments and build equity faster. This calculator helps you determine how much you should spend on your down payment and monthly payments based on this approach.
What is 85/15 Mortgage?
The 85/15 mortgage rule is a strategy where you aim to spend 85% of your income on your home purchase and 15% on your monthly expenses. This approach helps you:
- Keep your monthly housing costs manageable
- Build equity faster through lower monthly payments
- Reduce your overall interest payments over the life of the loan
- Qualify for larger loans with lower down payments
The rule is based on the general principle that your total housing costs (principal, interest, taxes, insurance) should not exceed 32% of your gross monthly income. This leaves room for other essential expenses.
How to Use This Calculator
To use the 85/15 mortgage calculator:
- Enter your annual income in the "Annual Income" field
- Select your loan term (15, 20, or 30 years)
- Enter your desired interest rate
- Click "Calculate" to see your recommended mortgage amount and monthly payment
The calculator will show you:
- Your recommended mortgage amount (85% of your annual income)
- Your monthly payment based on the 85/15 rule
- A breakdown of your monthly housing costs
- A comparison of your costs with other common mortgage strategies
How the 85/15 Rule Works
The 85/15 rule is based on the following calculations:
Maximum Monthly Housing Costs
32% of your gross monthly income = Maximum monthly housing costs
Example: If your annual income is $60,000, your maximum monthly housing costs should be $2,000 (32% of $5,000/month).
Recommended Mortgage Amount
85% of your annual income = Recommended mortgage amount
Example: With $60,000 annual income, the recommended mortgage amount is $51,000.
The calculator uses these values to determine your monthly payment based on standard mortgage formulas:
Monthly Payment Formula
M = P [i(1 + i)^n] / [(1 + i)^n - 1]
Where:
- M = Monthly payment
- P = Principal loan amount
- i = Monthly interest rate (annual rate divided by 12)
- n = Number of payments (loan term in years × 12)
This approach helps you stay within budget while maximizing your equity growth potential.
Example Calculation
Let's say you have an annual income of $75,000 and want to get a 30-year mortgage at 4.5% interest.
Calculation Steps
- Calculate maximum monthly housing costs: 32% of $6,250 = $2,000
- Determine recommended mortgage amount: 85% of $75,000 = $63,750
- Calculate monthly payment using the formula:
- Principal (P) = $63,750
- Monthly interest rate (i) = 4.5%/12 = 0.375%
- Number of payments (n) = 30 × 12 = 360
- Monthly payment = $63,750 × [0.00375(1.00375)^360] / [(1.00375)^360 - 1] ≈ $425.50
In this example, your total monthly housing costs would be approximately $425.50, which is well below your $2,000 maximum. This leaves room for other expenses while keeping your housing costs manageable.
| Income Level | Recommended Mortgage | Monthly Payment (30yr, 4.5%) |
|---|---|---|
| $50,000 | $42,500 | $287.50 |
| $75,000 | $63,750 | $425.50 |
| $100,000 | $85,000 | $575.00 |
| $150,000 | $127,500 | $850.00 |
Frequently Asked Questions
Is the 85/15 rule a good strategy for all buyers?
The 85/15 rule works well for buyers who want to keep housing costs manageable and build equity quickly. However, it may not be suitable for those with lower incomes or who need larger down payments for other reasons.
Does the 85/15 rule apply to all types of mortgages?
Yes, the 85/15 rule can be applied to conventional, FHA, VA, and USDA loans. However, specific loan programs may have different requirements for down payments and income limits.
How does the 85/15 rule compare to other mortgage strategies?
The 85/15 rule is more flexible than the 28/36 rule (which limits housing costs to 28% of income and total debt to 36%). It allows for larger loans while keeping monthly payments manageable.
Can I use the 85/15 rule if I have other debts?
Yes, you can use the 85/15 rule even if you have other debts, as long as your total monthly housing costs don't exceed 32% of your gross income. Lenders will consider your total debt when evaluating your loan application.