How to calculate your mortgage payment
Calculating your mortgage payment correctly can be harder than you think. Making sure your expected monthly payment fits your budget is crucial in determining if the home you’ve chosen is actually affordable.
Key points to remember
- Calculate your mortgage payments before you start shopping and repeatedly throughout the process to make sure your payments are within your budget.
- Your mortgage payment is made up of principal, interest, taxes and insurance (PITI).
- In addition to the PITI, be sure to include all HOA fees and mortgage or PMI insurance premiums.
- Although they are not included in your mortgage payment, be sure to factor in the costs of utilities and repairs to your new home when budgeting.
Before you start shopping from home
It’s a good idea to run some options through a mortgage calculator long before you begin your home buying journey. While property taxes and home insurance can be tricky to project onto a home you haven’t even chosen yet, our calculator lets you estimate them.
Homeowners Association (HOA) fees can be extremely common in some areas, especially those with new construction and similar homes, but are much less common in more established communities. HOA fees on some properties can make up a big chunk of your budget, so consider the type of home you want to buy and research one currently for sale to see if you can get an idea of HOA fees. If you want a brand new condominium in a community with lots of amenities, expect to pay hefty HOA fees.
Mortgage interest rates are rising rapidly, so check back periodically with the calculator to make sure you’re still shopping for a home in the right price range. Mortgage rates fell from an average of 3.76% in February 2022 to 4.17% in March 2022 and climbed even faster in the first weeks of April 2022.
What to include in your mortgage payment calculation
Your monthly mortgage payment is also called principal, interest, taxes and insurance (PITI). But the acronym PITI doesn’t quite encompass everything you need to include.
Principal and interest: Principal and interest is the amount you pay for the loan itself. The principal is the balance of the money you haven’t paid for the cost of the house itself. Interest is basically the fee you owe the lender for lending you the principal for the term of the loan.
Mortgage Insurance Premiums (MIP): Mortgage insurance premiums are generally required for Federal Housing Administration (FHA) mortgages and must be included in your monthly payment calculation. MIPs remain on your loan until you refinance a non-FHA loan.
Private Mortgage Insurance (PMI): Private mortgage insurance is generally required whenever you have a down payment of less than 20%. The PMI can be removed once your equity in the home is 20% or more of the home’s value.
Home insurance: Home insurance is required by every lender. It must be included in your mortgage payment calculation and is usually part of your escrow account.
Property taxes: The amount you pay in property taxes depends heavily on your area. In many areas, you can view the exact property tax imposed on your property through your assessor’s office online. Be prepared, as the property tax you pay can increase significantly after your sale, especially if you buy the property for significantly more than the amount it was last assessed for.
Homeowners Association Fee: Although HOA fees do not correspond perfectly to the classic PITI acronym, if your property has them, they should be included in the calculation of your monthly mortgage payment. They are rarely included in your escrow account, but you could lose your home if you don’t pay them.
Determine what you can afford
Simply accepting the amount the lender says you can afford is a recipe for stress and potential disaster. If you’re currently living paycheck to paycheck like millions of Americans are, then give yourself some wiggle room in your monthly payment amount.
Set up an automatic savings draft of the installment difference to go directly to your emergency fund. Once your emergency fund is full, set it up to go into your retirement account. This will help you weather financial storms such as a job loss, major home repairs, or unexpected healthcare expenses.
If you’re a two-income household, qualifying for the single-income mortgage (even if you both intend to take out the mortgage) can give you a lot of financial freedom if one of you has to be absent from work. Make sure your monthly mortgage payment is something you can easily afford and isn’t a budget you’d struggle to find after facing an unexpected expense.
Should I include anticipated utility costs in my monthly payment calculation?
You shouldn’t include utilities when calculating your monthly mortgage payment, but it’s important to consider them and include them in your budget. If you are used to renting a 900 square foot apartment, expect your utility expenses to increase significantly in a 2,000 square foot home, in addition to new utilities like garbage, water and sewers that you cannot use. to be paid directly, depending on where you currently live.
Should I include expected repair costs in my monthly payment calculation?
Repair costs aren’t something you have to include in your monthly payment calculation, but you should definitely keep them in mind. If the property you are considering needs major repairs or renovations, you should definitely think about how you will cover these costs before taking out a mortgage on the home.
When is my first mortgage payment due?
Your first mortgage payment is due on the first of the month after your first 30 days in the house. For example, if you close your home on January 5, your first payment isn’t due until March 1.
Before you even start shopping for a home, you should start playing around with mortgage calculators and your budget to figure out what you can really afford. Your mortgage payment calculation should include principal, interest, taxes, insurance, and any HOA, PMI, or MIP payments. Although this is not part of your calculation, you should definitely keep other costs associated with owning a home in mind, such as rising utility and repair costs, to ensure that you can really afford the house you have chosen.