How to Find Monthly Mortgage Payment
When you get a home loan, you agree to make periodic (usually
monthly) payments to repay the loan. This case study shows how to
compute the size of the payments required for your mortgage.
Mortgage Payment Components
Your mortgage payment consists of several parts, as described below.
- Principal. Principal refers to that part of
the loan payment that is applied to reduce the loan
- Interest. Interest is a fee paid to the lender.
Interest does not reduce the loan balance.
- Homeowner's insurance. This is the fee
required to obtain hazard insurance. This fee is generally
included as part of the mortgage payment, although it is paid
separately in some cases.
- Property tax. This is the fee required to
pay for property tax. Like homeowner's insurance, it is
usually part of the mortgage payment.
- Private mortgage insurance (PMI). This is a
fee that may be required by the lender, when the loan
balance exceeds 80% of the home's fair market value.
The main challenge in determining the monthly payment is to
figure out the principal and interest. The following case
study illustrates the process.
Mortgage Payment Analysis
You need info about the mortgage in order to compute the monthly
payment for principal and interest. For the purpose of this example,
we will assume that Paula wants to know the monthly payment
for an adjustable-rate mortgage. The mortgage features are
described in the table below.
||Months before first rate adjustment:
|Starting interest rate:
||Periodic rate cap:
||Maximum rate after adjustment:
||Months between rate adjustments:
Additionally, Paula pays $600 per year for homeowner's insurance, $3000 per
year for property tax, and $1200 per year for private mortgage insurance
To analyze the monthly mortgage payment, Paula uses the
provided on this site. She begins with the following steps.
- Choose "Find monthly mortgage" from the Main Goal dropdown box
of the calculator.
- In the "Options" section, check the boxes for
"Include mortgage insurance," "Include hazard insurance,"
and "Include property tax."
- Choose "Adjustable-Rate Mortgage" as the mortgage type.
Then, the calculator displays input boxes for the data it needs,
and Paula enters the required data. The calculator
settings and data entries are shown below.
Describe the Analysis
Describe the Loan
Describe the Rate Adjustment Rules
Months before first rate adjustment:
Maximum lifetime interest rate (%):
Months between rate adjustments:
Enter Tax and Insurance Info
Annual hazard insurance ($):
Annual mortgage insurance ($):
Appraised value of home ($):
After Paula clicks the Calculate button,
the calculator produces a report that
shows how each factor contributes to the monthly mortgage payment.
The key findings are shown below.
* Maximum payment refers to the largest monthly payment that could result from this adjustable-rate mortgage.
|Principal and interest (P&I)
|Principal, interest, and property tax
|Principal, interest, and insurance
|Principal, interest, and PMI
|Principal, interest, tax, and insurance
|Principal, interest, tax, and PMI
|Principal, interest, PMI, and insurance
|Principal, interest, tax, insurance, and PMI
The table shows how each component contributes to the total size of the
monthly mortgage payment. Since this is an adjustable-rate mortgage,
it also shows the size of the first payment and the size of the
maximum payment. If Paula cannot afford the maximum payment, she
might want to think twice about getting this mortgage.
Some Final Thoughts
For this example, we chose to assess the monthly mortgage payment for
an adjustable rate mortgage. However, we could have just as easily
performed the same analysis for a traditional fixed-rate mortgage or
for any of eight other kinds of mortgage,
simply by making a different choice of "Mortgage type".
Also, this analysis included the contribution of homeowner's insurance,
property tax, and private mortgage insurance (PMI). However, we
could have left out any or all of these factors, by making
a different choice of "Options".