Figuring the monthly payment on a mortgage
[an error occurred while processing this directive]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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