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  • Maria Chernetska

How to calculate your mortgage payment?

A mortgage calculator does all the complex math for you when you’re crunching monthly payment numbers to buy a home. Here’s how each field works:


Home price. If you’ve picked out a house at a specific price, enter that number here. You can also try a range of prices to see how they affect your payment.


Loan term. This is the number of years it’ll take to pay off your loan balance. Choose a 30-year fixed-rate term for the lowest possible payment or a 15-year term if you want to save interest and pay off the balance faster with a higher monthly payment.


Down payment. The more you put down, the lower your mortgage payment will be. If you make less than a 20% down payment, the calculator will estimate how much private mortgage insurance (PMI) you might pay (this insurance protects the lender in case you default).


Start date. The calculator will default to today’s date if you enter nothing here.


Home insurance. Lenders require you to have enough homeowners insurance to repair or replace your home if there’s a loss from something like a fire or theft. You can also compare shops with multiple insurance companies to get the lowest premium.


Mortgage rate. The calculator will reflect the most commonly offered rates. You can check today’s mortgage rates for a more accurate number.


Property taxes. Your property taxes will vary based on your location. You can enter the exact figure if you have it to get a more precise monthly payment estimate.


HOA fees. If you live in a neighborhood governed by a homeowners association (HOA), add the monthly fee here.


Monthly payment breakdown: Typical costs included in a mortgage payment


The calculator takes the following standard mortgage costs into account when calculating your payment:


Principal and interest. How much you’ll pay each month toward your loan balance and interest charges?


Property taxes. The calculator divides your annual property taxes by 12 to calculate this monthly amount.


Homeowners insurance. Your homeowner's insurance premium is divided by 12 to calculate this monthly amount.


HOA dues. The monthly HOA fee is included here, if applicable.


PMI. If you make less than a 20% down payment, the estimated monthly PMI charge is displayed here.


The calculator will then show you your total monthly payment, which is the total amount you’ll pay each month, and the figure the lender will use to qualify you for loan approval.


Total costs breakdown: Principal and interest over the life of a loan


It’s important to look beyond simply how much you’ll pay monthly when assessing a loan offer. The calculator will give you the following additional information, which can help you compare the true value of different loans:


  • Total loan amount The difference between your home price and down payment.

  • Total interest paid The amount of interest you’ll pay over your loan repayment term.

  • Total principal and interest payments The total dollar amount you’ll spend for all the expenses included in your monthly payment over the life of your loan.


The reason these numbers help us compare shops is that savings in the short term — a low monthly payment — usually indicate a higher total cost over the life of a loan. A lengthier loan term stretches out your debt, resulting in lower monthly payments, but mortgage interest rates for a 10-year loan will typically be lower than for a 15-year loan, which in turn will carry lower rates than a 30-year loan.


How to read a mortgage payment schedule?


A mortgage amortization schedule may sound (and look!) a bit intimidating, but it’s very simple. Think of it as a mortgage payment schedule but with a bonus: It also breaks down the equal installments you’ll pay over your loan term, showing how much of each payment goes toward principal versus interest. Some important things to understand about mortgage amortization:


You’ll pay more interest than principal during the initial years of your loan repayment

You’ll eventually pay more in principal than interest over time

Your total principal and interest payment amount never changes

You’ll have paid off your loan balance when you make the last scheduled payment unless you have an adjustable-rate mortgage (ARM)


How a home loan calculator helps


There are a lot of decisions to make when you’re buying a home. A mortgage calculator can help you decide whether you should:

· Make a larger down payment to get a lower monthly payment

· Make a larger down payment to reduce your monthly PMI amount

· Choose a shorter term to pay off your loan faster

· Buy a home in a neighborhood with expensive HOA fees

· Buy in an area with high property taxes


What our mortgage calculator tells you about your PITI?

The acronym “PITI” is short for principal, interest, taxes, and insurance — the four elements that make up your total mortgage payment. Although it’s not required, most homeowners prefer the convenience of having all four components included in their monthly payments.


A few things are worth noting about the PITI calculations included in our mortgage calculator:

· Principal and interest calculations are only for 30- and 15-year fixed-rate terms. Ask your lender about 10-, 20- or 25-year fixed-term options, or ARM programs.


· Property taxes may change yearly. The tax authorities in your area may adjust your tax rates, which could cause your PITI payment to fluctuate.


· Homeowners' insurance premiums can rise. Be prepared to shop around for homeowners insurance rates every year, especially if you see a jump in your premium.


· You may cancel your PMI. Lenders only require PMI if you have less than 20% equity in your home. As your home’s value increases, ask your lender about options to remove your PMI.


· HOA fees aren’t paid as part of your PITI. Although you’ll have to pay dues if your home is in an HOA community, lenders only use them to qualify you for your mortgage. You’ll pay the HOA fees directly to the association.


How much can you afford to borrow?

Lenders set limits on how much you can afford to borrow based on your debt-to-income (DTI) ratio — this is a measure of your total debt, including your new house payment, divided by your monthly earnings. Our mortgage calculator is based on conventional loan guidelines that typically cap your DTI ratio at 45%, although exceptions are possible to 50%.


EXAMPLE CALCULATION

Here’s a quick example of how to determine whether you can afford a mortgage, assuming your monthly payment is $2,500 and you make $6,000 per month before taxes:


$2,500 monthly payment divided by $6,000 monthly income = 41.67% DTI ratio


Since the conventional DTI ratio maximum is 45% to 50%, you likely can afford this payment. You can adjust the DTI ratio on a home affordability calculator to get an idea of home prices that fit within your budget.


How to lower your monthly mortgage payment?


Try one or all of the following tips to get a smaller monthly mortgage payment:


· Choose the longest term possible A 30-year fixed-rate loan will give you the lowest payment compared to other shorter-term loans.


· Make a bigger down payment Your principal and interest payments will drop with a smaller loan amount, and you’ll reduce your PMI expenses. With 20% down, you’ll eliminate the need for any PMI.


· Consider an ARM If you only plan to live in your home for a few years, ask about an ARM. The initial rate is typically lower than fixed rates for a set period; once the initial low-rate period ends, the rate can adjust based on the ARM term you choose.

Shop for the best rate possible Studies have shown that comparing quotes from three to five lenders can save you big on your monthly payment and interest charges over your loan term

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