Paying a mortgage and the additional costs specific to home ownership are well worth the expense for many homeowners. Unlike a rental, which typically requires only one payment each month, paying for your own home has additional payments involved such as the loan principal, interest, taxes and insurance coverage. The amount you pay for each of these housing costs depends on the type of loan you get and the prevailing rates in your area.
Calculating Loan Amount Plus Interest
With a typical loan amount of $200,000, which represents the sales price minus your down payment, and an average interest rate of 5 percent, you can determine your monthly loan payment. Interest-only loans, in which you pay interest and no principal for a specified time, reduce your monthly payment. For an interest-only loan, multiply $200,000 by .05. You get $10,000, which you divide by 12 months for a payment installment of about $833.
When paying principal and interest, your payment is slightly higher. Use a mortgage calculator and enter the number of years or months for your loan repayment term, typically 15 or 30 years -- or 180 or 360 months. Also, enter your loan balance and the interest rate. On a $200,000 loan with 5 percent interest, your loan payment is about $1,074.
Calculating Private Mortgage Insurance
You owe private mortgage insurance, or PMI, on a conventional loan in which you put down less than 20 percent as a down payment. PMI rates vary by lender and the level of risk your loan presents. PMI coverage protects the lender from default by reimbursing its losses if you end up in foreclosure. You pay an annual premium in monthly installments along with your loan payment.
To calculate PMI, multiply the lender's PMI premium rate by the loan amount. For example, a typical PMI rate ranges between 1 and 2 percent. With a 1 percent PMI rate, your annual premium on the $200,000 loan is $2,000. Divide the premium by 12 months and you get monthly payments of about $167.
Calculating Property Taxes
To calculate your monthly property taxes, determine the tax rate in your area by using an online tool provided by your local tax assessor or by calling the assessor's office. Taxes are based on the assessed value of your home at the time of purchase. A home valued at $210,000 with a tax rate of 1 percent has an annual tax bill of $2,100 ($210,000 x .01). When divided by 12 months, your monthly bill is $175.
Your property taxes will be lower if you qualify for a homestead tax exemption, which exempts a portion of your assessed property tax from tax liability. Each state has different guidelines for homestead tax exemptions, so you'll need to contact your local tax assessor to find out if you qualify for this tax benefit.
Figuring Your Total Monthly Payment
Calculate your total housing payment, including principal, interest, taxes and PMI by adding up the monthly installments. For example, on a $200,000 loan with a home valued at $210,000, the total housing payment on a 30-year loan equals about $1,416.
This payment does not include homeowners insurance, which you also must pay to protect yourself and the lender against losses in the event of fire or other hazards. An average premium costs about $900. Divided by 12, you pay an extra $75 a month for homeowners insurance.
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