How to Calculate Your Total Monthly Mortgage Payment
Calculating a mortgage payment involves more than just factoring in your loan's principal balance and annual interest rate. A complete out-of-pocket housing expense includes mandatory components like real estate property taxes, homeowners insurance premiums, and potential homeowner association (HOA) dues.
Understanding PITI (Principal, Interest, Taxes, Insurance)
- Principal: The portion of your payment that directly reduces your remaining loan balance.
- Interest: The fee charged by your lender for borrowing the principal capital.
- Taxes: Local county or municipal property taxes typically collected into an escrow account.
- Insurance: Hazard and homeowners insurance policies protecting the structure from loss.
The Mathematical Standard Amortization Formula
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1 ]
Where M is monthly principal and interest payment, P is principal loan amount, i is monthly interest rate, and n is total number of monthly payments.
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