How To Calculate Mortgage Payments

Do you know how to calculate your mortgage payments? Home acquiring is the most significant purchase people may make in their lifetime. It is undoubtedly helpful to think and develop strategies on how you’ll finance it. Falling in love with a home you can’t afford is one of many individuals’ challenges. However, you can avoid such challenges by setting an upfront budget long before looking at houses. Here is where a mortgage calculator comes in.

Quick And Easy Mortgage Calculator

This Calculator gives you a quick and easy overview of the relation between your interest and the principal you’ll pay. Further below, you’ll find a more detailed calculator.

What Is A Mortgage Calculator?

Mortgage calculators are automated devices that help users estimate their monthly mortgage payments. You can record different home prices, down payments, loan terms, and interest rates to see the changes in your monthly payment.

A mortgage payment involves combining four components that form PITI (principal, interest, taxes, and insurance).

Many clients know these costs. However, these costs surprise many home buyers since these are hidden expenses for homeownership.

How To Calculate Mortgage Payments

Often, homeowners who borrowed a loan to purchase a home make a lump sum monthly payment to their mortgage lenders. But, whereas the remittance is a monthly mortgage payment, what it includes exceeds the cost of repaying their loan and interest. For many American homeowners with a mortgage, monthly payments also encompass private mortgage insurance, homeowners insurance, and property taxes.

It is easy to approximate your total monthly payment by hand using a standard formula. However, it’s likely to be more comfortable using an online calculator. In either way, here is how to go about it.

Determine Your Mortgage Principal

The mortgage principal is the initial loan. For instance, with $100,000 cash, you can make a 20% down payment on a $500,000 home. But you’ll need to borrow $400,000 from the bank to complete and finance the purchase. They will deduct the principal for each monthly mortgage payment, but there will be an addition in interest.

Determine The Monthly Interest Rate

The interest rate is the bank charges, and you can see it in percentage form. To secure a lower interest rate, you need to have a high credit score, high down payment, and low debt to income ratio. You can check your credit score at FICO. Here, the risk of offering you a loan will be lower compared to someone with unstable financial status.

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Usually, lenders issue annual interest rate mortgages. If you want to calculate the monthly mortgage payment by hand, you’ll first determine the monthly interest rate. This calculation is as simple as dividing the annual interest by 12.  For instance, if the annual interest is 4%, the monthly interest will be 0.04/12=0.0033.

Determine The Number Of Payments

The most popular term for a fixed-rate mortgage is 30 years or 15 years. To get the number of monthly payments, you’ll have to multiply the number of years by 12.

A 30-year mortgage requires 360 monthly payments, whereas a 15-year mortgage would require half the number of payments or 180. Either, you need these more exact figures if you are substituting in the formula—an online calculate will work out the math itself once you choose your loan type from the loan options.

Ascertain Whether You Need Private Mortgage Insurance

You’ll need private mortgage insurance if you put down more than 20% of the home’s purchasing price. The lender will most often add your private mortgage insurance to your monthly mortgage payment. You’ll get the detail of the exact cost in your loan estimation, but the cost of PMI lies between 0.2% and 2% of your mortgage principal.

In most cases, the lender relinquishes PMI when the owner reaches 20% equity in the home.

Contemplate The Cost Of Property Taxes

Usually, a monthly mortgage payment includes property taxes, which the lender collects and records in a specific account. This account is commonly known as an escrow or impounds account. At the end of the year, the homeowner pays these taxes to the government. 

What you owe in property taxes depends on local tax rates and the home’s worthiness. The amount the lender estimates (the amount the homeowner needs to pay) could be more or less than the exact amount owed. This circumstance could cause a bill or a refund come tax season.

Think About Homeowners Insurance Cost

Close to all homeowners taking out a mortgage will require paying homeowners insurance. This part is another cost that lenders often bake into the monthly payment.

Comprehensive Mortgage Calculator

per year
per year

Your total monthly payment

Principal & Interest
Home insurance
Property taxes

This mortgage calculator allows you to calculate the mortgage in a more detailed version.

How Can I Calculate My Mortgage?

Determine Your Monthly Payment By Hand Calculation

You can work out your monthly mortgage payment without including taxes and insurance using a mathematical equation:

M = P [I (1+i) ^n] / [(1+i) ^n-1]

“P” is the principal loan amount. “I” is the monthly interest rate. And “n” represents the number of months required to repay the loan.

You can also add the monthly property tax and homeowner’s insurance premium to your monthly mortgage payment. These are fixed costs, and the amount you borrow from the bank doesn’t influence it. So the lenders can add these fees to the monthly cost at ease.

Do Your Calculations Using An Online Mortgage Calculator

Math doesn’t suit everybody. If you are not good at mathematics, you can try an online mortgage calculator (including costs and rates). This approach can give you an accurate figure of the monthly payment.

A mortgage calculator is a tool that will help you estimate your monthly mortgage payment and understand what it encompasses.

This knowledge is vital for your next steps as it equips you with an idea of the house you can afford. Either, you’ll have a clear picture of the amount that you’ll be required to bring in at the end.

The Bottom Line

A mortgage calculator can help you quickly estimate your monthly mortgage payment. It can also show you the sum amount of interest you’ll need to pay through your mortgage life. It is the alternative way to calculate your monthly mortgage payment, especially when you are not good at hand calculations. Many individuals use this tool to calculate their monthly mortgage payments. However, you can also use it for other purposes, such as estimated taxes and insurance costs.

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What to read next?

Hi, we are Lena and Chris. A finance-addicted couple from Germany. Ever since we can remember we are interested in finance. We love to research and review complex topics. As we were quite familiar with the world of finance at all, we thought we should share this information with the rest of the world. Our main reason we do this is to help people to orientate themselves in the confusing daily finance puzzle.


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