Calculating Monthly Payments.
The monthly mortgage payments homeowners make to their lenders typically involve more than just the cost of repaying the loan plus interest rates; it often includes private mortgage insurance, homeowners insurance and property taxes. You can either estimate your monthly payments by hand or an online calculator, but there are certain pieces of information you’ll need either way.
The Mortgage Principal
The mortgage principial is the initial loan amount. It is the amount still outstanding after you subtract the down payment. With each monthly mortgage payment, the principal will be reduced but interest will be added.
The Monthly Interest Rate
The monthly interest rate, or the fee charged in order to borrow money, will depend on various factors including credit score, a high down payment and low debt-to-income ratio. To calculate the monthly, simply divide the annual rate by 12.
Number of Payments
Typically, a fixed-rate mortgage term spans anywhere up to 15 or 30 years. To calculate the number of payments you have to make, multiply the number of years your term is fixed at by 12.
Private Mortgage Insurance
You’ll only need a private mortgage insurance if you put less than 20% of your home’s purchase price down. Usually, your PMI premium will be added to your monthly mortgage payments, with the exact cost varying, but typically standing between .2 and 2% of your mortgage principal.
At the end of the year, your property taxes—usually included in the monthly mortgage payment—will be paid to the government on the homeowner’s behalf. These are collected by the lender and put into a specific escrow or impound account.
There are eight different types of homeowners insurance which, like property taxes, are included in the monthly mortgage payments made to the lender. The insurance policies with high deductibles will usually have lower premiums.
Before taking out a mortgage, it is important to get all the information beforehand so you can accurately estimate the costs involved in the monthly payments. When you know, it makes for an easier journey because you have the confidence knowing you can afford it, and the preparedness of planning the way ahead.