One of the most viable ways to acquire a property or a home is to apply for a loan to be able to finance the purchase. From there, the property owner will only need to make the monthly payments necessary until they can pay back the loan in full. However, several variables can affect your monthly mortgage payment.
This article tackles how you can have an exact calculation of the monthly dues you need to settle.
Run the Variables in the Mortgage Payment Formula
There are two ways on how you can arrive at the exact calculation of your monthly mortgage payment. One is by computing the amount by hand, and another is by using a mortgage calculator. The latter proves to be quite convenient to use because you only need to enter in some details about your loan and the result will be the monthly mortgage payments you have to make. However, it is still worthwhile to look into the variables that affect your mortgage payment for you to have an idea of how it is calculated by hand.
Variables Affecting your Mortgage Payment
Determine the Principal Amount
One of the primary details that you need to know to be able to compute for the exact amount that you have to pay for your monthly mortgage is the principal amount that you have borrowed. This is your initial loan amount, which is sometimes referred to as your mortgage principal. With each of the monthly payments that you make, the principal amount should be reduced.
Compute for the Monthly Interest Rate
When you make a loan, the lender will usually ask for a fee in exchange for the money that you have borrowed. More often than not, this fee is the interest that you have to pay. Generally, when you have a high credit score, or you made a large down payment, then the interest that you need to settle will be significantly less. The reason behind this is that the risk of loaning you money is lower compared to another person with a less stable financial standing.
Consider the Number of Payments
For a fixed-rate mortgage, the typical term or duration of the loan is between 15 and 30 years. In this case, the number of monthly payments that you have to make is the number of years that you intend to take out the loan multiplied by 12, which is the number of months in a year. For instance, if your loan term is 15 years, then your number of payments will be 15 multiplied by 12 or 180. For a 30-year loan, this number is doubled.
Factor in the Insurance
There are a couple of insurance premiums that you have to consider in calculating for your monthly mortgage payment such as the private mortgage insurance (PMI), as well as your homeowners’ insurance. A PMI is only required in case you make a down payment that is less than 20% of your property’s purchase price. The premium that you have to pay will tend to be added to your monthly mortgage. The PMI cost is typically anywhere between 0.2% and 2% of the principal amount you have borrowed.
On the other hand, you may be required to pay homeowner’s insurance when you take out a mortgage. Likewise, the amount that you have to pay will most likely be integrated into your monthly mortgage payment. Just keep in mind that there are various types of homeowner’s insurance for you to choose from.
Identify the Taxes you have to Pay
Finally, you also need to factor in the taxes that you have to pay in calculating for your monthly mortgage payment. Property taxes are often collected by a lender and secured in a separate account, which is commonly referred to as the escrow or impound account. At the end of the taxable year, the lender will pay your due taxes to the government using the money collected in your impound account. The amount of property tax that you need to settle usually depends on the local tax rate in your jurisdiction, as well as the value of your home.
You will be able to have an exact calculation of your monthly mortgage payment by leveraging available calculators online which are specifically designed for this purpose. However, it is better if you have an idea of how it works and what variables are factored in the computation. In this way, even without the calculator, you will know how to compute your monthly mortgage payment for you to align your budget or finances accordingly.