How to Calculate Mortgage Payments

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Whether you’re shopping around for a mortgage or want to build an amortization table for your current loan, a mortgage calculator can offer insights into your monthly payments.

Follow these steps to use the Forbes Advisor mortgage calculator:

  • Enter the home price. Start by adding the total purchase price for the home you’re seeking to buy on the left side of the screen. If you don’t have a specific house in mind, you can experiment with this number to see how much house you can afford. And if you’re considering making an offer on a home, this calculator can help you determine how much you can afford to offer.
  • Input your down payment amount. Next, add the down payment you expect to make as either a percentage of the purchase price or as a specific amount.
  • Enter your interest rate. If you’ve already shopped around for a loan and have been offered a range of interest rates, enter one of those values into the interest rate box on the left. If you haven’t prequalified for an interest rate yet, you can enter the current average mortgage rate as a starting point.
  • Choose a loan term. To help calculate your monthly mortgage payment, enter a loan term up to a maximum of 30 years. If you haven’t been approved for a loan term and interest rate, the rate you select here should correspond with the average rate you entered above. For example, if you choose a 15-year term, use the average rate for a 15-year mortgage. If, instead, you want a balance between low monthly payments and a shorter term, you can use this portion of the calculator to compare your options.
  • Add in taxes, insurance and homeowners association (HOA) fees. This portion of the calculator is optional, but it can help give you a more accurate picture of your potential monthly payments. If you have the information available, plug in your monthly property tax, private mortgage insurance (PMI), homeowners insurance and HOA fees. If you don’t have these numbers in front of you, some information may be available through your real estate agent or your local property assessor’s website.
  • Review your loan details. Once you enter all of the relevant information on the left side of the screen, the calculator will auto-populate your payment breakdown on the right. This portion of the calculator lets you view your monthly payments as well as your estimated payoff month. Navigate to the amortization schedule tab to view how much of your annual payments will go toward interest and principal. You can also toggle between the annual and monthly view to see a breakdown of each monthly payment.

Breaking Down the Mortgage Payment Formula

The formula behind paying down a mortgage is complex, but it can be handy. It helps homeowners and would-be homeowners see what paying more money would mean for their monthly budget and their overall wealth profile.

To see the full breakdown, check out our mortgage payoff calculator.

Mortgage Fees and Costs

If this is your first time shopping for a mortgage, the terminology can be intimidating. It also can be difficult to understand what you’re paying for—and why.

Here’s what to look for when reviewing your mortgage costs and fees:

  • Principal: Principal is the amount of money you borrowed on the mortgage. A portion of each payment will go toward paying this off, so the number will go down as you make monthly payments.
  • Interest rate: This is essentially what the lender is charging you to borrow the money. Your interest rate is expressed as a percentage and may be fixed or variable.
  • Property taxes: Property taxes are imposed by your local tax authority. This number can usually be viewed on your recorder or assessor’s website—wherever you access property cards and other real estate records.
  • Homeowners insurance: Homeowners insurance is required to protect you and your lender in the case of damage to your home. If you’re considering a home, ask the real estate agent if they have any information about current insurance costs. Otherwise, contact your local insurance agent to get a quote.
  • Mortgage insurance: Also known as private mortgage insurance—or PMI—this protects the lender in case you default on your mortgage. It typically ranges from 0.58% to 1.86% of your total mortgage amount and you will need to factor this in if your down payment is less than 20%.
  • HOA fees: Homeowner Association fees may be required if you buy a property in a shared community such as a condominium complex. HOAs are private organizations set up to govern and maintain such spaces. The fees may be nominal, but they might make your monthly payments unaffordable.

source:ForbesAdvisor.com

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