Calculate a Mortgage

From LoveToKnow Mortgage

When you ask a loan consultant to help you calculate a mortgage you should keep in mind that the figures you get will merely be estimates. There are some aspects to a mortgage payment that may not be accurately forecasted by a loan consultant.

PITI

A mortgage loan payment is generally comprised of four factors:

  • Principal
  • Interest
  • Taxes
  • Insurance

This set of four factors is often referred to as PITI, which is an acronym for all four terms. When you ask a mortgage consultant to estimate your mortgage payment for a potential loan you should verify with your consultant that the figure you receive includes all factors of PITI. If your consultant only gives you a monthly figure for principal and interest - but unbeknownst to you does not include an estimate for taxes and insurance - you may go forth with the loan under the mistaken impression that your loan payment each month will be much less than it actually will be. The solution is to verify with your consultant that the calculation includes an estimate of all four elements of PITI.

Taxes and Insurance

Loan consultants at mortgage lending companies have access to information which will assist them in helping you to estimate the monthly cost of taxes and insurance. These estimates are not concrete, however, and you should only consider these figures estimates instead of expecting to see these exact figures on your final loan documents. You should also realize that your total PITI payment may change from year to year, even if you have a fixed rate mortgage loan. This is because taxes and insurance charges can change each year, and your escrow payment will follow suit.

Other Loans

Not every mortgage loan follows the PITI model, and it’s important that you understand the complete details of your loan before you sign the closing documents.

  • Private Mortgage Insurance (PMI) is a mandatory insurance required by many lenders when the borrower does not supply a down payment of 20% or more. If you have PMI on your mortgage this will be an additional cost in addition to the PITI.
  • Some borrowers split their mortgage payment into more than one loan, resulting in more than one payment each month. In this instance, the second mortgage loan would be in addition to the PITI payment of the first mortgage.
  • Borrowers are sometimes given the option of paying their own taxes and insurance, and in this instance the lender would only receive principal and interest payments from the borrower without putting any funds into an escrow account for taxes and insurance.
  • Interest-only mortgage loans give borrowers the option of not making payments to the principal balance for a predetermined amount of time.

Other loan conditions exist which will differ from the PITI model. When calculating a mortgage payment, always make sure you understand the monthly payment you will be expected to make to your lender.

Calculate a Mortgage Payment Yourself

If you would like to calculate a mortgage payment by yourself you can use one of the many mortgage calculators available on the Internet. An online calculator will help you estimate the cost of you mortgage payment based on:

  • The amount of money you want to borrow
  • The interest rate you expect to receive for the loan
  • The number of years you want to amortize the loan for
  • If a refinance, the market value of your home
  • If a consolidation refinance, the total amount of other debt you want to include in the loan

Some online mortgage calculators will estimate the total cost of your PITI payment by presenting an approximation of tax and insurance charges within the geographical area in which you plan to buy a home. Remember that these may not be completely accurate, but can be considered more of a ballpark figure of the costs you will encounter. Even if the estimates are not completely accurate, however, they are still a good starting point to help you calculate a mortgage payment.

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