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Knowing exactly how much you have to pay on your mortgage loan is an important part of creating a budget. To calculate the total monthly cost of your loan, you must first realize that the loan is more than just a principal and interest payment. You must take into account additional costs such as taxes, insurance and private mortgage insurance if applicable.
Your standard monthly payment to your lender is composed of principal and interest. Principal is the amount that will reduce your balance, while interest is the cost of borrowing the money. To calculate principal and interest, you need the principal amount of the loan, the interest rate and the term. You can plug this information into an online loan calculator to get your exact payment. For example, a $250,000 mortgage at 4 percent for 30 years carries a monthly principal and interest payment of $1,193.54
Most lenders require you to escrow for your real estate taxes. This means that the monthly tax payments are added to your loan payment. When you get your quarterly tax bill, multiply that amount by four. So if your taxes are $1,250 per quarter, they will be $5,000 for the year. Divide this figure by 12 and you will see that your monthly taxes are $416.67. Add this to your $1,193.54 mortgage payment and you are now paying $1,610.24.
When a lender escrows for property taxes, it also does so for homeowner’s insurance. To figure your monthly insurance premium, take the yearly premium and divide by 12. So if your yearly insurance premium is $600, your monthly payment is $50. Add that to your principal, interest and tax payments of $1,610.24 to get your total payment of $1,660.24.
If you put less than 20 percent down on your home, you will have to pay private mortgage insurance. The amount of PMI is determined based on the amount of the down payment and the term of the loan. For example, if you put 10 percent down on a 30-year loan, the PMI rate is 0.52 percent. Multiply the loan amount by the PMI rate. In this case, it will be $250,000 times 0.0052, which equals an annual PMI premium of $1,300. Divide this figure by 12 to get your monthly PMI payment of $108.33. Add that to your principal, interest and escrow payments of $1,660.24 to get your total monthly loan payment of $1,768.57.