How to Figure Your Total Mortgage PaymentHow do I know if I have the total mortgage payment right? When you want to figure your 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. Best Mortgage Payments PrinciplesWhat 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 paymentthat reduces your loan balance. So if you borrowed $200,000 from the lender, each month a small part (see examplebelow 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 yearsbelow. Results
Payments ExplainedWhen 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 theprincipal (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 youpay 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 forthe privilege of living in the neighborhood. This part of your total mortgage payment is a variable. Since I cannotpossibly know the taxes and insurance figures these are my best estimate. Taxes are usually figured on a percentage of the value ofyour home. Using an escrow account, the lender collects 1/12thof 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 hazardinsurance to cover the home and your personal property. This insurance protects you against fires, theft and other naturaldisasters. I have more on insurance elsewhere on this site. You mustbe careful here also since you could find yourself lacking in coverage for waterdamage and other things. Most first time home buyers have the lender collect thisinsurance 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 typeof a payment plan with your insurance carrier for cars, home and so on. Like your taxes, you can have 1/12th collectedeach month so when your yearly premium comes due the money’s there to pay forit. Again, using the same example above your total mortgagepayment or PITI would look like this: Results
Now keep in mind that the homeowners and taxes can vary depending on where you live. These are estimates only for your instruction. Also note that PMI is notincluded in this example. If yourloan to value is 80%, then you do not need to pay PMI. We discuss that elsewhere on our website. As you can see, principal andinterest 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 in figuring how your total mortgage payment is calculated. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||