Figuring House Payments

Elements of a Payment

When you are considering the purchase of a new home, or the refinancing of an existing home mortgage, you should carefully review the projected monthly payment to make sure that it fits within your budget.

Your monthly house payment includes more than just the actual mortgage loan. For budgeting purposes, you should consider your monthly house payment to include:

• Payment for the mortgage – This will include the interest and loan principal owed as well as the closing costs if you are rolling them into your mortgage loan.
• Payments for private mortgage insurance – Lenders usually require a borrower to have private mortgage insurance if their down payment is less than 20% of the purchase price, unless the mortgage is guaranteed by FHA or the VA.
• Property taxes – Your lender may require you to deposit a specific amount into an escrow account each month to cover your annual or semi-annual property tax bill.
• Homeowner's insurance – Your lender will require basic homeowner's insurance on the property to protect against fire and other liability damage.

Consider the Future

Many homeowners have been surprised by a drastic increase in their monthly payment after an interest rate change. To avoid unpleasant surprises in the future, you should be figuring house payments on several different payment scenarios:

• On fixed and adjustable rate mortgages, calculate payments based on:
  • The initial payment (using the initial interest rate)
  • The payment after any introductory rate changes

• On an adjustable rate mortgage, you should also calculate payments expected if:
  • The interest rate increases to its maximum interest rate at the end of the first year.
  • The interest rate increases to its maximum interest rate for the life of the loan.
  • The payment of the terms of the mortgage change at a certain point such as an interest-only 15 year mortgage.

Steps to Figuring House Payments

Each element in your house payment needs to be calculated separately, with the results added together to determine your monthly house payment. Here are the basic calculation instructions for each element:

• Mortgage – This will include the interest and loan principal owed each month as well as the closing costs if you are rolling them into your mortgage loan.
• Private Mortgage Insurance (PMI) – PMI can be estimated at about 1/3700th to 1/1500th the price of the home. On a $120,000 home you can expect to pay approximately $32 to $80 a month for PMI.
• Property Taxes – Property taxes are usually calculated based on a percentage of the appraised value of the home. City taxes are usually calculated on a set amount for each household. To estimate your projected property tax bill, you will need to research the state and local property taxes in your area. Your County Tax Assessor can tell you the projected amount of the taxes.
• Homeowner's Insurance – An insurance agent can give you a quote on homeowner's insurance.
• Maintenance Costs – Whether you house is 100 years old or brand new, you can expect to have maintenance costs. For calculation purposes you can start by assuming that the maintenance costs are going to be equal to 1 percent of the purchase price of the home.

Finding a Mortgage Calculator

The easiest way to estimate your monthly house payment is with a mortgage calculator. The calculator gives you the opportunity to enter the dollar amounts associated with your particular loan purchase - such as the amount of the loan, the interest rate and the term of the loan - and then the calculator does the mathematical calculations for you.

There are many mortgage calculators available online that you can use with no charge. When selecting your calculator, look for an all-inclusive calculator that considers all the elements of your monthly payment including taxes and insurance, and not just the amount of the loan and the interest. Be sure that you understand the assumptions that are made by the calculator in determining the monthly payment.