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 balance.
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.

Adjustable-Rate Mortgage Features
Loan term:	30 years	Months before first rate adjustment:	12 months
Starting interest rate:	7.5 percent	Periodic rate cap:	1 percent
Loan amount:	$250,000	Maximum rate after adjustment:	10 percent
		Months between rate adjustments:	12 months

Additionally, Paula pays $600 per year for homeowner's insurance, $3000 per year for property tax, and $1200 per year for private mortgage insurance (PMI).

To analyze the monthly mortgage payment, Paula uses the mortgage calculator 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

Main goal:

Options:

Show amortization schedule
Include mortgage insurance
Include hazard insurance

Include property tax
Include prepayments
Include tax deductions

Describe the Loan

Mortgage type:

Loan term (in years):

Loan amount ($):

Starting interest rate:

Describe the Rate Adjustment Rules

Months before first rate adjustment:

Periodic rate cap (%):

Maximum lifetime interest rate (%):

Months between rate adjustments:

Enter Tax and Insurance Info

Annual property tax ($):

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.

Payment factors	First payment	Maximum payment
Principal and interest (P&I)	$1,748.04	$2,179.71
Principal, interest, and property tax	$1,998.04	$2,429.71

Principal, interest, and insurance	$1,798.04	$2,229.71
Principal, interest, and PMI	$1,848.04	$2,279.71

Principal, interest, tax, and insurance	$2,048.04	$2,479.71
Principal, interest, tax, and PMI	$2,098.04	$2,529.71

Principal, interest, PMI, and insurance	$1,898.04	$2,329.71
Principal, interest, tax, insurance, and PMI	$2,148.04	$2,579.71

* Maximum payment refers to the largest monthly payment that could result from this adjustable-rate mortgage.

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".