The hassle of a mortgage payment can be increased when you take into account taxes and private mortgage insurance. PMI comes into play when you put down less than 20 percent on a loan. You can calculate your principal and interest, but you won't know your full monthly payment until you add in taxes and PMI.
Principal and Interest
The main part of your mortgage payment is principal and interest. This is based on the rate and term of your loan. You pay a set payment every month with interest calculated on the unpaid principal balance. As the balance goes down with each payment, more of the payment will go to principal and less to interest. Suppose you buy a home for $278,000 and put $28,000 down. On a $250,000 loan, priced at 5 percent for 30 years, the monthly principal and interest payment is $1,342.05.
Your bank requires property taxes to be included with your mortgage payment. Since tax liens take priority over mortgage liens, the lender wants to make sure your taxes stay current. Essentially, your yearly property tax is divided over 12 months. Suppose your yearly tax payment of $6,000; you pay $500 per month in taxes. This is added to your principal and interest.
Private mortgage insurance, PMI for short, is an additional premium you pay when you put down less than 20 percent on a home purchase. The amount of PMI is directly related to the percentage of your down payment and the length of your mortgage. If you've put 10 percent down on a 30-year mortgage, giving you a 90 percent loan-to-value, your PMI rate is 0.52 percent. Multiply this by your loan amount, $250,000 for example, to get the yearly premium of $1,300. Divide this by 12 to get your monthly PMI payment of about $108.
On a $250,000 mortgage at 5 percent for 30 years with yearly property tax of $6,000 and a 90 percent loan to value, your total monthly payment is about $1,950. This includes about $1,342 of principal and interest, taxes of $500 and a PMI of about $108. When the lender gets the payment it applies the principal and interest to the loan and places the taxes and PMI in escrow. When your taxes are due from the municipality, it sends the payment from the funds in escrow. It does the same with the PMI provider.
Carl Carabelli has been writing in various capacities for more than 15 years. He has utilized his creative writing skills to enhance his other ventures such as financial analysis, copywriting and contributing various articles and opinion pieces. Carabelli earned a bachelor's degree in communications from Seton Hall and has worked in banking, notably commercial lending, since 2001.