How Do I Calculate My Mortgage Payment Without Using A Mortgage Calculator?

Calculating an exact mortgage payment without a calculator on a loan is no small task, but there are some simple rules-of-thumb you can use to get a close estimate.

With the exception of the MIT Blackjack Team, performing this type of complex math in your head often leads to frustrating rants.

When coming up with a rough estimate, it is important to understand the individual components that factor into the overall monthly mortgage payment.

Yes, the thousands of dollars you send to your lender every year may cover more than just the mortgage, but referring to one simple formula will help you gauge what the new payment will be as you’re out looking for new properties that may be in your price range.

What’s In A Mortgage Payment?

A mortgage consists of 4-6 parts:

  • Principal – the balance of the loan
  • Interest – the fee paid to borrow the mortgage money
  • Property Taxes – based on county assessed value and residence type
  • Hazard Insurance – in the case of fire or property damage (may include a separate flood policy)
  • Mortgage Insurance – more than 80% LTV on conventional loans, or with FHA financing

Most lenders use the acronym (PITI), which includes Principal, Interest, Taxes and Insurance.

And in the case where a separate Mortgage Insurance Premium is required, we add another “I” to the end of that creative series of letters.

Another monthly expense that you have to consider is the monthly dues that come with properties that have a homeowner’s association (common in condominiums and other developments). This isn’t a payment made to your lender, but you will have to qualify with that payment and it is also good practice for you to factor that in the monthly cost of your new home.

Confused yet? Don’t worry, this is slightly easier than most state bar exams.

The Mortgage Payment Cheat Sheet:

Ok, you’ve made it this far and haven’t closed your browser, so that is a good thing.

Please keep in mind, this top secret formula will by no means be exact.

Mortgage Payment Formula:

For every $1000 you borrower, your TOTAL monthly mortgage payment will be $8.

So, if you purchase a home for $250,000 with a $50,000 down payment – borrowing a total of $200,000, then a good estimated total monthly PITI payment would be roughly $1600.

But don’t forget to add your homeowners association dues to that monthly payment.

What If I Pay Taxes and Insurance Separately?

Well now we’re at the easy part. If you elect to pay taxes separate from your mortgage, the cheat sheet is reduced from $8 per $1000 down to $6 per $1000.

So there you have it. $8 for every $1000 borrowed.

Again, please keep in mind that this is not going to give you an EXACT payment. You may be purchasing a property with higher real estate taxes or your insurance premiums may be higher than average depending on the state you live in.

_________________________________

Related Articles – Mortgage Payments:

Understanding An Amortization Schedule

By committing to a mortgage loan, the borrower is entering into a financial agreement with a lender to pay back the mortgage money, with interest, over a set period of time.

The borrower’s monthly mortgage payment may change over time depending on the type of loan program, however, we’re going to address the typical 30 year fixed Principal and Interest loan program for the sake of breaking down the individual payment components for this particular article about an amortization schedule.

On each payment that is made, a certain amount of interest is taken out to pay the lender back for the opportunity to borrow the money, and the remaining balance is applied to the principal balance.

It’s common to hear industry professionals and homeowners talk about a mortgage payment being front-loaded with interest, especially if they’re referencing an amortization chart to show the numbers. Since there is more interest being paid at the beginning of a mortgage payment term the amount of money applied to interest decreases over time, while the money applied to the principal increases.

We can better understand mortgage payments by looking at a loan amortization chart, which shows the specific payments associated with a loan.

The details will include the interest and principal component of each periodic payment.

For example, let’s look at a scenario where you borrowed a $100,000 loan at 7.5% interest rate, fixed for 30 year term. To ensure full repayment of principal by the end of the 30 years, your payment would need to be $699.21 per month. In the first month, you owe $100,000, which means the interest would be calculated on the full loan amount. To calculate this, we start with $100,000 and multiply it by 7.5% interest rate. This will give you $7,500 of annual interest. However, we only need a monthly amount. So we divide by 12 months to find that the interest equals $625. Now remember, you are paying $699.21. If you only owe interest of $625, then the remainder of the payment, $74.21, will go towards the principal. Thus, your new outstanding balance is now $99,925.79.

In month #2, you make the same payment of $699.21. However, this time, you now owe $99,925.79. Therefore, you will only pay interest on $99,925.79. When running through the calculator in the same process detailed above, you will find that your interest component is $624.54. (It is decreasing!) The remaining $74.68 will be applied towards principal. (This amount is increasing!)

Each month, the same simple mathematic calculation will be made. Because the payments are remaining the same, each month the interest will continue to be reduced and the remainder going towards principal will continue to increase.

An amortization chart runs chronologically through your series of payments until you get to the final payment. The chart can also be a useful tool to determine interest paid to date, principal paid to date, or remaining principal.

Another frequent use of amortization charts is to determine how extra payments toward principal can affect and accelerate the month of final payment of the loan, as well as reduce your total interest payments.

_________________________________

Related Articles – Mortgage Payments: