In most cases, a lot of homeowners who request a loan to purchase a new property are usually making a single lump-sum to pay their mortgage lender monthly. More than half of the total American homeowners who carry a mortgage, the payment they give to their lenders monthly covers the property taxes, homeowner’s insurance, as well as private mortgage insurance.
If you are asking how to calculate a mortgage payment, you can do it easily and conveniently. Some prefer calculating it by following the standard formula, while others prefer using a calculator. No matter what method you are going to use, the following are the things you need;
Steps on Calculating Your Mortgage Monthly Payment
The following are the steps you need to follow to determine the approximate amount of your mortgage payment.
Know Your Mortgage Principal
The mortgage principal is also called the initial loan amount. For instance, you are planning to purchase a new home worth 500,000 US Dollars. You need to make a 20 percent down payment, which is 100,000 US Dollars. But even though you have an initial down payment of 100,000 US Dollars, you still need to complete the 500,000 US Dollars by requesting a loan amount of 400,000 US Dollars from your trusted bank. Take note that in every mortgage payment you pay monthly, there is a decrease in the mortgage principal and an increase in the interest.
Determine Your Monthly Interest Rate
When you are borrowing money from a bank, the bank will charge you money, which is called the interest rate. Your credit score has something to do with your interest rate. This means that if you have a good credit score, the bank will charge you a low-interest rate.
Most lenders offer a mortgage interest rate annually. But some prefer paying the interest rate monthly. You can calculate it by dividing your fixed annual interest rate by the number of months in one year. For instance, you have an interest rate of 5 percent; it will be shown as 0.05 divided by 12 is equal to 0.0042. 0.0042 will be your monthly interest rate.
Determine Your Number of Payments
In most cases, a mortgage fixed rate is ranging from 15 years to 30 years. You can determine the number of payments you should make in one year easily. To calculate, if your fixed-mortgage rate is 15 years, you need to divide it by the number of months in one year, which is 12.
Determine if You Need a Private Mortgage Insurance or Not
PMI stands for Private Mortgage Insurance. It is a requirement for those borrowers who didn’t meet the fixed 20 percent initial down payment. According to the statement made by the Consumer Financial Protection Bureau, the Private Mortgage insurance premium will be added to the mortgage payment that the borrower needs to pay to their lenders monthly.
Remember the Cost of Property Taxes
As we mentioned earlier, the mortgage fees you need to pay monthly covers your property taxes. Your lender will collect your property taxes and will save it in another account, which is usually called an impound or escrow account. Each year, the taxes collected by your lender will be sent to the government on your behalf.
Your property taxes will always vary on your home’s value as well as the tax rates in your local area. Some interest rates are often more than or less than the money you borrowed. You can take a look at the official website of your local government to determine the possible tax rate of your property.
Take Note of the Homeowner’s Insurance Cost
In most cases, every homeowner who borrowed a mortgage money is required to make a payment for the homeowner’s insurance. The homeowner’s insurance cost is included in the mortgage payments you perform monthly.
Determine Your Monthly Payment Using the Standard Method
Calculating your monthly mortgage payment can be done easily and conveniently. But take note that this method does not include the insurance as well as the taxes you need to pay. You can determine your monthly mortgage payment by following this formula.’
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1], wherein P stands for the Principal loan amount, (i) stands for the monthly interest rate, and (n) stands for the number of months you need to pay the loan completely.
After calculating your monthly mortgage payment, which is represented by M, it’s time to add your homeowner’s insurance premium as well as the monthly property tax, only if these two are present. These are some of the fixed costs that you cannot determine using the amount you owed from the bank. This means that you need to add them to your monthly payment.
Using an Online Mortgage Calculator, Determine the Sum of Your Calculated Numbers
If one of your most hated subjects during your junior high school is mathematics, then you don’t have to worry about knowing your monthly mortgage payment. Using an online mortgage calculator, try to compute all the numbers you get throughout the steps mentioned above. One of the great things about an online mortgage calculator is that it enables you to determine your taxes as well as the insurance costs.
Compared to calculating the numbers by hand, an online calculator provides you with a more accurate result. Most of the homeowners who have owed money from their 45lenders are using an online calculator to know their mortgage payments monthly. Not only that, an online calculator can be used by estimating your insurance costs as well as the estimated taxes.
It is very important to calculate the mortgage payment that you need to make every month. If you don’t know how to, you can rely on the steps we mentioned above. Take note that when it comes to your property taxes, the amount will depend on the value of your property as well as your geographical location.