December 17th, 2019 8:16 AM by Jackie A. Graves, President
principal and interest when you're building your housing budget.
WHEN IT COMES TO
YOUR monthly mortgage
payment, you're not just paying off the sticker price of the home. Your payment
typically covers the principal and interest, taxes, and insurance – together
known as PITI – plus a few other costs. It's easy to forget some of these costs
when budgeting for a mortgage, which can lead to surprises.
"It's always a good idea to know how to calculate a
mortgage payment on your own," says Mark Zihmer, originating manager at
mortgage lender Guaranteed Rate Affinity. "It helps you determine if you
can afford a payment on the fly."
To calculate your mortgage payment, first gather a few details
about the home and loan. Then you can use a free online mortgage payment
calculator or spreadsheet program to run the calculations – or crunch the
numbers by hand. Here's how to do the math on a mortgage payment.
How Is PITI Calculated?
PITI is calculated by adding together your principal, interest,
taxes and insurance. While the principal and interest are set over the course
of a fixed-rate loan, "the payment will vary when you start adding in
other factors such as taxes, a homeowners association fee, homeowners
insurance, mortgage insurance and maintenance on the home," says Trent
Davis, real estate broker associate with Coldwell Banker Residential Real
Estate – Florida.
However, you can still estimate each of these elements when
calculating your mortgage payment:
Principal. This is "the true amount you've taken out, or the
price of the house minus the down payment," Davis says. For example, if
you buy a house priced at $200,000 and you make a 20% down payment, then your
principal is $160,000 at the start of the loan term.
Interest. This is what the bank charges you to borrow money. Your
lender will provide you with an interest rate when you get preapproved for a mortgage or apply for
the loan. The total principal and interest won't change over time on a
fixed-rate loan, but the interest may increase or decrease if you have an
Taxes. State and local governments can levy real estate or property
taxes, which typically help pay for schools, police, parks and other community
services. The amount you pay is usually based on the value of your home, so the
portion that goes toward taxes may fluctuate each year as your home value
increases or declines. To estimate this payment, call your local government tax
agency or your lender and provide the address of the home.
Insurance. Homeowners insurance protects the home and its contents
from natural disasters, liabilities, theft and other troubles, but "the
payment is not one-glove-fits-all," Davis says. "You can make premiums
higher and deductibles lower or vice versa. It depends on how much coverage you
want and the discounts you can take advantage of."
Shop around for homeowners insurance so you can
estimate this portion of the mortgage payment. To get an accurate quote, you'll
need the home's address and some information about its structure and size.
There's more to a mortgage payment than just PITI. Here's what else
you could be on the hook for:
Homeowners association fee. If you live in a condo or
neighborhood with an association, you may be required to join the association
and pay dues. Ask the seller about this monthly fee, which usually pays for
common areas and amenities, such as a fitness center, pool, landscaping and
parking lots. While you'll typically pay this fee directly to the association –
not your mortgage servicer – this is considered part of your monthly mortgage
Private mortgage insurance. If you put down less than 20% of
the home's selling price at closing, then the lender will typically require you
to pay mortgage insurance. This cost is baked into your monthly mortgage
payment and protects the lender in case you default on the home loan. The
lender will estimate your PMI based on the price of the home and your down
payment, but expect to pay between $30 and $70 per month for every $100,000
Once the equity in your home reaches 20%, you can usually ask
the bank to remove the PMI payment. However, some
loans, such as Federal Housing Administration loans, have different guidelines.
Home maintenance and emergencies. Certain costs won't
go into your mortgage payment but are important to factor into your budget when
calculating home costs. For example, you'll need to consider whether you need
to hire a landscaper (or buy lawn care equipment), estimate the utility bills
and budget for appliances that will need to be replaced.
"Consider the age of the home," Zihmer says.
"When was the last time the property had any maintenance for major items
like the roof or air conditioning?"
It's also smart to have an emergency savings account for home
repairs and insurance deductibles. "When you own a house, there's always a
risk something will go wrong," Davis says.
Using the PITI and other main housing costs, you can choose an
online monthly mortgage payment calculator and plug in the numbers. Or you can
dive into the math yourself. Here's how to calculate a mortgage payment using
Calculate monthly mortgage payments in Excel. Spreadsheet
programs, such as Excel and Google Sheets, include a payment function that can
calculate the principal and interest on a mortgage. Let's say you buy a condo
priced at $150,000. You make a down payment of 10% (or $15,000) on a 30-year
fixed-rate mortgage with a 4% interest rate.
Here's how to calculate monthly mortgage payments in Excel:
In the spreadsheet, type in "=PMT" to prompt the
payment function. The program will ask you to type in the following variables:
Of course, the principal and interest are only a portion of what
you'll pay every month. Add a table to your spreadsheet and enter your
estimated monthly costs, which you've gathered from various sources.
Here's how those costs break down:
TO GET THIS COST
and interest (rounded up)
with spreadsheet formula
from local tax agency or lender
quotes from various insurers and choose the best one
(private mortgage insurance)
from seller or HOA
You may also choose to include your ongoing maintenance costs
and emergency home savings for a more complete picture of your housing costs.
Calculate monthly mortgage payments by hand. It's also
possible to estimate a mortgage payment by hand. Use the following formula to
find the principal and interest:
M = P[r(1+r)^n/((1+r)^n)-1)]
M = the monthly mortgage payment, which is the number you want
P = the principal loan amount, or $135,000
r = your monthly interest rate, or 0.003333
n = number of monthly payments, or 360
Here's the formula with those numbers plugged in:
M = $135,000[0.003333(1+0.003333)^360/((1+0.003333)^360)-1]
M = $135,000[0.00477392237]
M = $644.48
Your mortgage payment is important, but you'll also want to know
how much interest you pay over the life of the loan. Your lender will give you
an amortization schedule at closing, but you can also use a spreadsheet program
to create one.
Here's how to calculate your amortization schedule on the first
six months of the loan term:
When you're done, you'll know how to calculate the principal and interest on a
home loan, create an amortization schedule and estimate the other items that go
into your monthly housing costs. However, Zihmer says, "People can make
mistakes, so it's best to at least double-check the numbers with a mortgage
While lenders may preapprove you for a certain home loan amount,
these calculations can help you understand what you can afford and create a
realistic budget before you start checking out homes.
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