As long as you know how many years you will be paying your mortgage, the interest rate of the mortgage and how much money you will be borrowing, you can easily calculate a mortgage payment. The only problem is you will only find out how much principle and interest you will be paying each month.
Unfortunately, there is a lot more involved in a monthly house payment than principle and interest. It is these extras that can make the difference between making mortgage payments with ease, and foreclosure.
In this article you will find out how to calculate a mortgage payment the right way, in its entirety. By doing this, you will borrow an amount of money you will be able to pay back without stress. This will make it easier to budget your money without fear of getting behind on your payments.
Principal and Interest are the Starting Point
$100,000 financed for 30 years at 7% requires a mortgage payment of $665.30. Knowing this in today’s market gives you a heads up when you need to quickly estimate a mortgage payment. Of course, the mortgage payment you will be estimating will be the interest and principle only. This is the starting ground from which your monthly house payment will be calculated.
For simplicity’s sake, we will say you are thinking of buying a home where you will need a mortgage of $200,000 and the going interest rate is 7% and, like almost everyone else, you will be financing for 30 years. This means your principle and interest payment will be 2 times $665.30 or, $1,330.60 a month. Now, what else will be added to this amount each month?
Taxes and Insurance
Most lenders make sure you have homeowner’s insurance. They will also see to it you pay your property taxes. They do this, not so much because they are nice guys, but because they don’t want somebody else to take your property away from them. How could this happen?
If someone got hurt on your property and successfully sewed you, they could take everything you had, including your house. This would give your lender a legal burden they wouldn’t want or need. To prevent this from happening, the lender usually collects money from you each month to pay for your homeowner’s policy. This way you and they will be protected against this kind of suit.
Another entity that could fight your lender for ownership of your house is the local government and this is exactly what they will do if you default on your property taxes. For this reason, the lender will collect money from you every month to be used to pay your property taxes.
You can figure your yearly property tax will cost you at least, 1 to 2% of the worth of your home. So, on a $240,000 property, you can guess you will be paying $2,400 to $4,800 a year. This calculates to $200 to $400 a month.
This amount will depend upon where you live. You should be familiar with a town’s mill rate before you buy a home there. Your homeowner’s policy will cost about $700 to $1,000 a year, so you can figure around $75 a month for this expense.
Water and Sewer
Another pair of monthly housing expenses are water and sewer. If you live in the city, this is a classic case where they get you coming and going. City water will easily cost you $50 a month and the sewer, which is just another word for tax, will cost you, in some cities, about $1,000 a year, which figures out to $85 a month.
If you live out of the city, your water and sewer charges become the cost of the upkeep of your well and septic system. However, after all is said and done, one problem with either one of these things will cost you an amount that will be close to what the cost is for city water and sewer.
These costs will come at much larger intervals than a monthly expense but they will be much greater amounts. In other words, it all evens up in the long run. Or should I say it all comes out in the wash?
Your Payment is Bigger Than the Calculator Told You
The end of the story is, to pay this $200,000 mortgage; you will need to pay $1,330 a month for interest and principal. Plus, you will be paying, let’s say, $300 a month property taxes and $85 a month for homeowner’s insurance. So far, this amounts to $1,710 monthly. Then add $50 for water and $85 for sewer and you will come up with $1,850 a month for your real mortgage payment.
Of course, there are more expenses required to live, but taxes and insurance, along with water and sewer are things that people who rent don’t ordinarily pay. It is knowing about these expenses in advance that is the key to realizing you could be overextending yourself financially thus, risking foreclosure. So, be sure to calculate your complete monthly mortgage payment before you say, “I’ll take it!”