How to Calculate a Mortgage Payment With Insurance & Taxes
Buying a house is a complicated process, and no aspect of a purchase is
more complex than the financial side. Numerous variables go into the
calculation of your final monthly mortgage payment, and that sum often
comes as a surprise to buyers, even after looking at numbers for weeks.
Your lender and real estate agent will provide estimates, but you should
be crunching the numbers yourself. Don't be passive during this
important process. There are formulas you can use to compute your
mortgage payment. You can use online mortgage calculators that will pop
out a number for you, but you'll still need to have the correct
information at hand. When buying a house, knowledge is power, especially
when it comes to financing.
- Computer
- Spreadsheet software (optional)
- Mortgage loan amount
- Insurance and tax estimates
Instructions
2.
Determine your down payment. For this example, we'll use a down payment of $10,000.
3. Estimate closing costs, if you plan to roll these into the loan. For this example, we'll use closing costs of $5,000.
4. Calculate the loan amount. In this example, the purchase
price is $150,000, and you're paying $10,000 down and rolling into the
loan $5,000 in closing costs, resulting in a loan amount of $145,000.
6. Ask your real estate agent for the amount of annual property
taxes on the property. If you're already working with a lender, this
information should be included on the good faith estimate prepared by
the lender. You can also contact your county tax office.
7. Estimate the annual insurance premium for the property. Contact an insurance agent to get a quote.
8. Calculate the estimated private mortgage insurance (PMI)
payment. You'll pay this if your down payment is less than 20 percent of
the purchase price. Average PMI runs from $50 to $80 per month on a
home priced at $159,000, according to the Mortgage Insurance Companies
of America. The actual PMI is based on the loan-to-value ratio (LTV).
PMI for a 100 percent LTV is usually around 1 percent and goes down from
there with lower LTV ratios.
9. Calculate the monthly payment. The most convenient method is
to go online and use one of the many mortgage payment calculators
available, such as www.mortgagecalculator.org. Just plug in the numbers
and it will quickly spit out your monthly payment.
10. Use a spreadsheet if you prefer not to go online. This
example is based on the scenario above that resulted in a loan amount of
$145,000. The loan is for 30 years at a fixed rate of 6 percent. Type
the following formula into your spreadsheet: =PMT(6%/12,360,145000).
That's 6 percent interest (divided by 12 to give you a monthly rate) for
360 months (30 years) and loan amount of $145,000. The result is your
monthly principle and interest payment of $869.35.
11. Add in your estimates for taxes, insurance and PMI, if
necessary. Insurance costs vary, of course. The average annual premium
was $804 in 2006, according to the Insurance Information Institute. That
equals 12 monthly payments of $67. For this example, we'll figure
annual property taxes of $2,000, or about $167 a month. So, $869 for
principle and interest, plus $67 for insurance, plus $167 for taxes
comes out to a total monthly payment of $1,103. If you need to pay PMI,
add an additional $50 (estimated) for a total of $1,153.
