 |
How to Figure Your Total Mortgage Payment
When you want to figure your total mortgage payment you need to take 4 things into consideration. If you ever heard the acronym PITI it’s not someone that feels sorry for you. What PITI stands for is Principal, Interest, Taxes and Insurance. Now let’s break them down further. The principal portion is the part of your total mortgage payment that reduces your loan balance. So if you borrowed $200,000 from the lender, each month a small part (see example below to find out why) goes toward the balance. I used an example of a $200,000 loan with a fixed rate at 6% for 30 years below. Results
When you look at the payment in this example, the P&I part is $1,199.10 for 360 months or your total mortgage payment. In the first month, when you make your payment, $199.10 goes to the principal (P) mortgage balance the interest (I) for that month is $1,000.00. When you look at the 12 months I used above in our example, you notice each month you pay less in interest and more on the principal. So it does not take a rocket scientists to know that you pay more than double for your house over the 30 years. Of course if your interest rate is higher you’ll pay even more. So that takes care of the P&I part of the PITI. Now to the other 2 parts T&I or Taxes and Insurance. The taxes are what your county and state charge you on a yearly basis for the privilege of living in the neighborhood. This part of your total mortgage payment is a variable. Since I cannot possibly know the taxes and insurance figures these are my best estimate. Taxes are usually figured on a percentage of the value of your home. Using an escrow account, the lender collects 1/12th of the yearly property tax bill and places it in your escrow fund. Most states require taxes to be paid in advance, some are in the arrears. The last part of this is the home owners insurance. Lenders will not allow you to close on a property unless you have hazard insurance to cover the home and your personal property. This insurance protects you against fires, theft and other natural disasters. I have more on insurance elsewhere on this site. You must be careful here also since you could find yourself lacking in coverage for water damage and other things. Most first time home buyers have the lender collect this insurance money each month and place it in your escrow fund as well. In some cases you can keep it out of your payment if you are on some type of a payment plan with your insurance carrier for cars, home and so on. Like your taxes, you can have 1/12th collected each month so when your yearly premium comes due the money’s there to pay for it. Again, using the same example above your total mortgage payment or PITI would look like this: Results
Now keep in mind that the home owners and taxes can vary depending on where you live. These are estimates only for your instruction. Also note that PMI is not included in this example. If your loan to value is 80%, then you do not need to pay PMI. We discuss that elsewhere on our website. As you can see, principal and interest make up the largest part of your total mortgage payment. The schedule I’m showing you is called amortization. As your loan matures then a larger portion of your payment goes towards the principal part of your loan. Hopefully you found this page helpful to figure how your total mortgage payment is calculated. For more information on First Time Home Buyer loans and how to they work visit our mortgage library.
Return to our Home Page First Time Home Buyer
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
