Monthly payment breakdown: Typical costs included in a mortgage payment
The calculator takes the following standard mortgage costs into account when calculating your payment:
- Principal and interest. How much you’ll pay each month toward your loan balance and interest charges.
- Property taxes. The calculator divides your annual property taxes by 12 to calculate this monthly amount.
- Homeowners insurance. Your annual homeowners insurance premium is divided by 12 to calculate this monthly amount.
- HOA dues. The monthly HOA fee is included here, if applicable.
- PMI. If your down payment is less than 20%, the estimated monthly PMI charge displays here.
The calculator will then show you your total monthly payment — which is the total amount you’ll pay each month — and the figure your lender will use to qualify you for loan approval.
The table below shows what this tradeoff would look like for three different repayment terms for a $360,000 loan at today’s interest rates.
As you can see, even small differences in how much you pay monthly can make radical changes in the total cost of a loan.
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Total costs breakdown: Principal and interest over the life of a mortgage loan
It’s important to look beyond simply how much you’ll pay monthly when assessing a loan offer. The calculator will give you the following additional information, which can help you compare the true value of different loans:Total loan amount. The difference between your home price and your down payment.
Total interest paid. The amount of interest you’ll pay over your loan repayment term.
Total of all payments. The total dollar amount you’ll spend for all the expenses included in your monthly payment over the life of your loan.
The reason these numbers help us comparison shop is that savings in the short term — a low monthly payment — usually indicate a higher total cost over the life of a loan. A lengthier loan term stretches out your debt; this results in lower monthly payments, but a higher cost to borrow the money. Mortgage interest rates for a 10-year loan will typically be lower than for a 15-year loan, which in turn will carry lower rates than a 30-year loan.
If you’re a math whiz and you’d prefer to make the calculations yourself, here’s the formula embedded in the mortgage calculator:
A = P[r (1+r)n ]/[(1+r)n-1]
A = P r (1+r)n(1+r)n-1
A = Payment amount per period
P = Initial principal (loan amount)
r = Interest rate per period
n = Total number of payments or periods