How to calculate your mortgage

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Before plunging into the world of taking out a home mortgage, it would be great if you know how to calculate mortgage loan.  There are online mortgage loan calculators that you can use.  You can search for it or understand how the formula works and go the old-fashioned way using your pen and paper.

How to calculate your mortgage payment

Some of the things  you need to do are to know the details for the following:

  1. Mortgage principal
  2. Loan interest rate
  3. Number of payments or mortgage duration
  4. Cost of property taxes
  5. Private mortgage insurance (PMI)

Mortgage principal – Let us say that you are eyeing a $500,000.00 mortgage. You saved $100,000.00 or a 20% downpayment, so that leaves you with $400,000.00. The $400K is what will be your mortgage principal.

Loan interest rates – The rule of thumb here is that the bigger your credit score is, the smaller your annual interest may be. However, people with bad credit should not totally close their doors on taking out a home mortgage because there are possible options like applying for an FHA loan.   In these times of COVID-19, minimum loan requirements are changing, so it is wise to talk to your loan originator for a more up to date information.

Number of payments or mortgage duration – Usually, a loan term is 15 years or 30 years, so multiply this by 12 (months in a year) for you to get the number of months of your mortgage duration.

Cost of property taxes –  Property taxes are usually included in your monthly mortgage payments. This will not go to the lender, but this will be in an escrow account so that at the end of the year, the property taxes will be paid to the government in your name.  This varies depending on your property’s location, so best to check out your local government’s property tax rate.

Private mortgage insurance (PMI) – This is a requirement if you cannot afford to put in a 20% downpayment for the property that you want.  As an industry practice, this is usually added to your monthly mortgage payments. But the good news is that once your home equity reaches the 20% requirement, the PMI can be waived.

Calculating can get daunting, so go ahead and lookup an online mortgage calculator to make life easier, or you can contact us if you need help on this matter.