Your Monthly Mortgage Payment Shouldn't Be a Surprise—Here's How to Calculate it

Calculating your mortgage payment correctly may be harder than you think. Making sure that your projected monthly payment fits within your budget is crucial in determining that the house that you’ve picked out is actually affordable. To calculator your mortgage payment, you'll need your principal loan amount, your interest rate, loan term, property taxes, and any home insurance payments (if you pay it with your mortgage).

Key Takeaways

• Calculate your mortgage payments before you start house shopping and repeatedly throughout the process to make sure that your payments will fit into your budget.
• Your mortgage payment is made up of principal, interest, taxes, and insurance (PITI).
• In addition to PITI, make sure you include any homeowners association (HOA) fees and mortgage insurance premiums (MIPs) or private mortgage insurance (PMI).
• Although they are not included in your mortgage payment, make sure to consider utility and repair costs on your new home when mapping out your budget.

Use a Mortgage Calculator Before You Start Home Shopping

It’s a good idea to run some options in a mortgage calculator long before you ever start your homebuying journey. While property taxes and homeowners insurance can be hard to project on a home that you haven’t even picked out yet, our calculator allows you to estimate them.

Homeowners association (HOA) fees can be extremely common in some areas, particularly those with new construction and similar homes, but they are much less common in more established communities. HOA fees on some properties can constitute a large portion of your budget, so consider the type of home that you want to buy and look up one currently for sale to see if you can get an idea of the HOA fees. If you want a brand-new condominium in a community with plentiful amenities, expect to pay a hefty HOA fee.

Interest Rates Trends

Mortgage interest rates are rising rapidly, so periodically check back in with the calculator to make sure that you’re still shopping for a home in the right price range. Mortgage rates rose from an average of 2.79% in August 2021 to 8.01% in October 2023. By July 2024, rates began to drop below 7%. Mortgage rates can change daily, so if you're buying a home, monitor the rates and try to lock in a rate you're comfortable paying.

What to Include When Calculating Your Mortgage Payment

Your monthly mortgage payment is also referred to as principal, interest, taxes, and insurance (PITI). But the PITI acronym doesn’t quite encompass everything that you should include, such as:

• Principal and interest: Principal and interest is the amount that you’re paying for the loan itself. Principal is the balance of the money that you haven’t paid down toward the cost of the home itself. Interest is essentially the fee that you owe the lender for loaning you the principal for the length of the loan.
• Mortgage insurance premiums (MIPs): Mortgage insurance premiums (MIPs) are usually required on Federal Housing Administration (FHA) mortgages and must be included in your monthly payment calculation. MIPs stay on your loan until you refinance to a non-FHA loan.
• Private mortgage insurance (PMI): Private mortgage insurance (PMI) is typically required whenever you have a down payment of less than 20%. PMI can be removed once your equity in the home is equal to 20% or greater of the home’s value.
• Homeowners insurance: Homeowners insurance is required by every lender. It must be included in your mortgage payment calculation and is usually part of your escrow account.
• Property taxes: The amount that you pay in property taxes is highly dependent on your local area. In many areas, you can look up the exact property tax assessed on your property through your assessor’s office online. Be prepared, because the property tax that you pay can go up significantly after your sale, especially if you’re buying the property for substantially more than the amount for which it was last assessed.
• Homeowners association (HOA) fees: While HOA fees don’t fit neatly into the classic PITI acronym, if your property will have them, then they should be included in your monthly mortgage payment calculation. They are rarely included in your escrow account, but you could lose your home if you don’t pay them.
  

Determine a Mortgage Payment You Can Afford

Simply accepting the amount that the lender says you can pay is a recipe for stress and potential disaster. If you’re living paycheck to paycheck, as millions of Americans are, then give yourself some wiggle room in your monthly payment amount.

Set up an automatic savings draft of the difference in payments to go directly to your emergency fund. Once your emergency fund is filled, set it to go to your retirement account. Doing this will help you weather financial storms such as a job loss, a major home repair, or an unexpected health expense.

If you’re a two-income household, then qualifying for the mortgage off one income (even if you both intend to take on the mortgage) can give you significant financial freedom if one of you needs to take time off from a job. Make sure that your monthly mortgage payment is something that you can easily afford and isn’t a budget stretch that you would struggle to come up with after meeting an unexpected expense.

Frequently Asked Questions (FAQs)

Should I Include Anticipated Utility Costs in My Monthly Payment Calculation?

You shouldn’t include utilities in your monthly mortgage payment calculation, but it’s important to consider and include them as part of your budget. If you’re used to renting a 900-square-foot apartment, expect your utility expenses to go up significantly in a 2,000-square-foot home, in addition to new utilities such as trash, water, and sewer that you may not be used to paying directly, depending on where you currently live.

Should I Include Projected Repair Costs in My Monthly Payment Calculation?

Repair costs aren’t something that you should include in your monthly payment calculation, but you absolutely should keep them in mind. If the property that you are considering is in need of significant repairs or renovations, then you absolutely will need to consider how you will cover those costs before you sign on to a mortgage on the home.

When Is My First Mortgage Payment Due?

Your first mortgage payment is due the first of the month after your first 30 days in the home. For example, if you close on your home on Jan. 5, then your first payment isn’t due until March 1.

The Bottom Line

Before you even start shopping for a home, you should start playing with mortgage calculators and your budget to determine what you can truly afford. Your mortgage payment calculation should include principal, interest, taxes, and insurance (PITI), as well as any HOA, PMI, or MIP payments. While not part of your calculation, you absolutely should keep in mind other costs that come with owning a home, such as increased utility and repair costs, to make sure you can truly afford the home that you’ve picked out.