Figuring Your Total Monthly House Payment
By Shelley O’Hara
- Calculating your monthly payment with mortgage rates
- PITI: other mortgage payment fees
- Paying for mortgage insurance
After you close on the home, you then make your mortgage payment on the date and interval, usually monthly, specified for your loan. The total you owe includes payment toward the house (principal) as well as interest (what the bank gets for providing you with the loan). You can get an idea of loan payments using a spreadsheet program such as Excel or a mortgage calculator found on the Web. To calculate your monthly payment, you include in the formula the total price financed, the interest rate, and the term (life of the loan). For instance, on a $200,000 mortgage at 6 percent, your loan payment would be roughly $1,200. But that’s not the grand total.
In addition, your mortgage payment usually includes other fees. You may see PITI when you read about mortgage payments: This stands for principal, interest, taxes, and insurance — the key components of your monthly mortgage payment.
To ensure you keep the taxes and your insurance paid, lenders typically set up an escrow account, and your monthly mortgage payment includes a percentage of these totals. For instance, you may pay 1/12 of your total insurance premium each month. This ensures that when your insurance payment is due, your lender has the money to pay it. In some cases, you may have to pay for a year’s worth of home insurance upfront (as part of closing). The same is true for taxes; you may pay a portion of your taxes at closing as well as a percentage monthly. Arrangements vary depending on what’s customary in your market as well as your lender agreement.
Unless you paid 20 percent for your down payment, you usually also pay private mortgage insurance (PMI) or mortgage insurance premium (MIP). These payments are necessary until you own a certain percentage of your home. Your lender will use this insurance to recoup some expenses if you default on your home loan. Like tax and home insurance, you may pay part of this payment upfront as well as a certain percentage monthly.
After you have lived in your home for a few years, check out your equity. Mortgage insurance isn’t cancelled automatically, although now you are supposed to be notified when it is no longer required. Once you’ve paid enough toward principal, you can drop the payment and lower your monthly payment. You need to make arrangements with your lender.
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