How to calculate a monthly mortgage payment? This is a calculation I run through many times per day for buyers, however, a number of first time homebuyers are confused about what goes into a mortgage payment. So below I have it broken down -- we’ll keep it in 2 main categories FHA mortgages and Conventional mortgages.
The basic calculations are the same no matter which type of mortgage program you are using. The most important thing to remember is that your mortgage payment is comprised of 5 main components:
- Principal and Interest,
- Taxes,
- Homeowner’s Insurance,
- Monthly mortgage insurance premiums (if you put down less than 20% and don't have a second mortgage),
- Homeowner’s association or condo dues (will be paid separately from your mortgage payment).
Conventional Example with 20% down, $500,000 sales price, $6,000 annual taxes, $50 HOA
Loan Amount = Sales Price ($500,000) * .8 (1 – Down payment percentage) = $400,000
- Principal and Interest = You will need to use an amortization schedule, I like this one: http://www.bretwhissel.net/cgi-bin/amortize. Enter in the loan amount ($400,000), payments per year (12), interest rate 5%, payments (360) = $2147.29 / month
- Taxes = Check the taxes on the listing, or for a more accurate number go to your county tax website and lookup the property, take the annual tax amount and divide by 12 to get a monthly amount (make sure to use the full tax bill and does not include any of the homestead deductions). $6,000 / 12 = $500 / month
- Homeowner’s Insurance Estimate = Take the sales price ($500,000) * 0.2% = $1000 / 12 = $83. Then round up to the next quarter = $100 / month
Add everything together: $2148 P/I + 500 Taxes + 100 Insurance + 50 HOA = $2,798 / month
FHA Example 3.5% down, $225,000 sales price, $3,000 annual taxes, $75 HOA
Everything is the same as conventional except FHA has an upfront mortgage insurance premium and also a monthly mortgage insurance premium. The upfront is normally financed into the loan amount.
- Base loan amount = Take the sales price (225,000)* .965 = Base loan amount $217,125
- Final loan amount = $217,125 * 1.01 (upfront MIP) = $219,296 @ 5% (run an amortization schedule) = $1,140 / month
- Monthly Mortgage insurance: Base loan amount * .009 / 12 = $217,125 * .009 = 1954 / 12 = $163 / month ** monthly MI is slated to increase on April 18th
- Taxes: total tax bill divided by 12. $3000 / 12 = $250 / month
- Insurance: estimate $50 / month
- HOA: $75
Add everything together: $1140 + 250 + 50 + 163 + 75 = $1678 / month
Happy calculating!
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