Mortgage Payment Calculation - Oro Valley Real Estate
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Your payment typically covers the principal and interest, taxes, and insurance – together known as PITI – plus a few other costs. It's easy to forget some of these costs when budgeting for a mortgage, which can lead to surprises.
How Is PITI Calculated?
PITI is calculated by adding together your principal, interest, taxes and insurance. While the principal and interest are set over the course of a fixed-rate loan, the payment will vary when you start adding in other factors such as taxes, a homeowners association fee, homeowners insurance, mortgage insurance and maintenance on the home. However, you can still estimate each of these elements when calculating your mortgage payment:
Principal. This is the price of the house minus the down payment. For example, if you buy a house priced at $200,000 and you make a 20% down payment, then your principal is $160,000 at the start of the loan term.
Interest. This is what the bank charges you to borrow money. Your lender will provide you with an interest rate when you get preapproved for a mortgage or apply for the loan. The total principal and interest won't change over time on a fixed-rate loan, but the interest may increase or decrease if you have an adjustable-rate mortgage.
Taxes. State and local governments can levy real estate or property taxes, which typically help pay for schools, police, parks and other community services. The amount you pay is usually based on the value of your home, so the portion that goes toward taxes may fluctuate each year as your home value increases or declines. To estimate this payment, call your lender and provide the address of the home.
Insurance. Homeowners insurance protects the home and its contents from natural disasters, liabilities, theft and other troubles. You can make premiums higher and deductibles lower or vice versa. It depends on how much coverage you want and the discounts you can take advantage of.
Shop around for homeowners insurance so you can estimate this portion of the mortgage payment.
What Else Should You Estimate in a Mortgage Payment?
Homeowners association fee. If you live in a condo or neighborhood with an association, you may be required to join the association and pay dues. Ask the seller about this monthly fee, which usually pays for common areas and amenities, such as a fitness center, pool, landscaping and parking lots. While you'll typically pay this fee directly to the association – not your mortgage servicer – this is considered part of your monthly mortgage payment.
Private mortgage insurance. If you put down less than 20% of the home's selling price at closing, then the lender will typically require you to pay mortgage insurance. This cost is baked into your monthly mortgage payment and protects the lender in case you default on the home loan. The lender will estimate your PMI based on the price of the home and your down payment, but expect to pay between $30 and $70 per month for every $100,000 borrowed.
Home maintenance and emergencies. Certain costs won't go into your mortgage payment but are important to factor into your budget when calculating home costs. Consider the age of the home. When was the last time the property had any maintenance for major items like the roof or air conditioning? When you own a home, there's always a risk something will go wrong.