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How to Calculate Your Mortgage Payment
The basic calculation for a house payment is to multiply the annual interest rate times the the loan times the number of months of the mortgage. For example, 5 percent -- interest rate -- times $250,000 -- mortgage amount-- times 360 -- 30 year mortgage -- equals $450,000. Article continues below
Divide that by 360 for the monthly payment of principle and interest of $1,250. This gives you a pretty close approximation. The bank will calculate the interest based on each month. In other words the 5 percent annual interest rate is .41 percent on a monthly basis. Divide the taxes for the year and the private mortgage insurance -- PMI by 12 and add to the monthly payment.
Amount of the Loan
The larger the loan the larger the payment will be. With all other variables held constant a $350,000 mortgage results in a monthly payment of $2,000. It increases to $2,500 for a $450,000 loan amount and decreases to $1,500 for $250,000 loan.
Length of the Loan
Thirty, 20 and 15 year mortgages are available. If you want to substantially decrease what you'll pay for the interest of the loan, a 15 year mortgage does that very nicely. For example a $250,000 mortgage for a 30 year loan results in total payments of $550,000 and monthly payments of $1,500. A 15 year loan results in total payments of $380,000 or savings of $170,000. The monthly payment for just principle and interest on the 15 year loan is $2,000.
The interest rate has the greatest impact on the payment total after the amount of the mortgage. A difference of as little as one percent can result in hundreds of dollars per month. Variable, or adjustable rate, mortgages are based on the prime lending rate and as the name suggests, varies from time period to time period. In the early years of making mortgage payments, most of the payment goes to pay the interest. As the equity slowly builds and the total of the amount owed on the home decreases, the amount that is applied toward the principle of the loan accelerates. The $250,000 mortgage for 30 years at 6 percent interest results in a monthly payment of $1,800 at 4 percent the payment is $1,550.
Where You Live
Taxes are property taxes and are dependent on where you live as well as the assessed value of the house. Market value differs than the assessed tax value. Call the county assessor to get the tax rates for the neighborhood you're considering.
Insurance included in the mortgage payment includes private mortgage insurance if you've made less than a 20 percent down payment. It varies depending upon the size of the loan. Once the loan drops to less than 80 percent of the original mortgage amount the PMI drops off. If you don't have your own homeowner's insurance on the property the mortgage company will obtain a policy and include that premium in the mortgage payment. The premium cost depends on the value of the building. The land isn't included. Even if the house is destroyed the land still has value.
Most mortgages are made once a month. However, if you pay half the mortgage payment every two weeks, it results in an extra payment being made in a year's time. There are 12 months in a year and 52 weeks. 52 divided by 2 equals 26 payments or 13 full payments.
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