Figuring
the monthly payment on a mortgage
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Your monthly
payment includes more than just the payments on the
loan! If your down payment was less than 20%
then you'll also pay for Private Mortgage
Insurance. And either way, you'll also pay for
taxes and insurance. Many mortgage calculators
don't include these amounts, which makes them kind
of useless. Our calculator gives you a more
realistic picture of your real total monthly
obligation.
Summary
What's this? The calculator
above gives you a rough estimate of your monthly
payment. If you came to this page first, what
might be more useful to you is our calculator
for how much home you
can afford.
Buy even if it costs more than renting.
As we saw on the Basics
of Buying and the Rent
vs. Buying pages, it's usually better to
buy, even if your monthly payment winds up being
quite a bit higher, as long as you can afford
it. The benefits of ownership pay off in the
long run.
What to enter. You can change the
values with the blue
border. Everything else is calculated
automatically.
Assumptions & Calculations.
- The "Monthly Payment to Bank" is perfect
-- it's not an estimate. See below for how
it's calculated.
- The "Private Mortgage Insurance" is an
estimate.
- "Taxes and Insurance" are assumed to be
2% of the purchase price annually, though you
can change that figure. (You'll need to
research property tax and insurance rates in
your area to get a more accurate picture.) We
divide the annual cost by 12 to get the
monthly cost.
- Note that maintenance is NOT included in
this calculator. I generally assume that
maintenance costs are 1% of the purchase
price per year, or an extra 0.083% per
month.
Figuring the payments on
a loan
You can use a spreadsheet program to
figure out the payments on a loan. Open up
your trusty spreadsheet software (Excel,
ClarisWorks, etc.), and type in the following:
=PMT(A%/12,B,C)
Instead of typing the letters A, B, and C,
use these figures instead:
A = Enter the interest rate
of the loan. Note that the formula divides it
by 12 because you want the monthly interest
rate, not the yearly interest rate.)
B = Enter the number of months
you'll be making mortgage payments: 180 for a
15-year loan, or 360 for a 30-year loan.
C = Enter the amount of the loan.
This is the price of the house, minus the
down payment, plus closing costs (if you're
rolling the closing costs into the loan).
Note that the result is a negative number.
Don't worry about that. If it bothers you, put a
minus sign between the = sign and "PMT".
Here's an example. Let's say our home costs
$140,000. We're putting 5% down ($7,000), so
we'll only need to borrow $133,000. But we're
rolling the closing costs ($6,000) into the
mortgage, which takes it back up to $139,000.
Our interest rate is 8% and it's a 30-year loan.
So we've got:
=-PMT(8%/12,360,139000)
And our answer is $1020 a month. But wait,
your mortgage payment also includes taxes and
insurance. To find amount of the taxes, call the
County Tax Assessor. To find the cost of
insurance, call an insurance agent and get a
quote.
Let's say that taxes are $2500/year and
insurance is $1100/year. That's $3600/year
together, or $300/month. So your total monthly
mortgage payment is $1320 ($1020 from what we
figured earlier, plus $300 for taxes and
insurance.)
One more thing: If you put less than 20%
down, you'll probably have to pay for Private
Mortgage Insurance (PMI). PMI generally
costs about 1/3700th to 1/1500th the price of
the home. (On a $120,000 home, you'll pay $32 to
$80/mo. for PMI).
Using this
formula to pay off a loan early
You can use this formula to figure out
how much you have to pay in order to pay your
loan off early. For example, let's say you're
five years into a 30-year mortgage, and you want
to pay the loan off in another 13 years instead
of another 25. Just enter in the principal
remaining on your loan (should be listed in your
coupon book or on your mortgage statement), and
use the number of months you want to pay it off
in (in this case, 13 years x 12 months/year =
156 months).
=PMT(8%/12,156,80000)
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