How to Calculate Mortgage Payments

This mortgage calculator provides you with the opportunity to customize and examine different scenarios of your real estate loan, making it easier to make estimates and conduct a better analysis of how to manage the numbers in the real estate sector. This calculator has been designed to be easy to understand while allowing you to update information at any time, similar to what banks in the United States use when providing an amortized home loan. It is important to note that numbers and conditions may vary depending on each bank's internal policies and each client's specific situation. It is essential to remember that your monthly housing payment includes more than just repaying the amount you borrowed to buy the property. The 'principal' is the amount you borrowed and must repay, while the interest is what the bank charges for providing you with the loan. For most clients, the total monthly payment sent to the bank not only covers the loan and interest but also other costs such as home insurance and taxes. If you use an escrow account, you pay a fixed amount toward these additional expenses within your monthly mortgage payment. The financial institution typically manages these funds in the escrow account until it's time to pay insurance and tax bills, with the bank usually handling the escrow payments on your behalf in most cases. If your loan requires additional insurance, such as private mortgage insurance (PMI) or homeowners association (HOA) fees, these costs will also be included in your total mortgage payment. For an accurate estimate tailored to your specific needs, it is recommended to consult with specialized professionals, such as Juan Carlos Carrera's Real Estate Team at (702) 297-6053, who can provide detailed and personalized advice based on your situation at no cost for the consultation.

Home Price

It refers to the total cost of purchasing a residential property, such as a house or an apartment. This price includes the value of the home itself and may vary based on factors such as location, size, features, and real estate market conditions. The "home price" is a key factor to consider when buying a property and when assessing the affordability of a home. A buyer's ability to handle the home price is evaluated based on factors such as income, down payment, loan interest rate, and loan term.

Down Payment

Most home loans require at least 3% of the price of the home as a down payment. Some loans, like VA loans and some USDA loans allow zero down. Although it's a myth that a 20% down payment is required to obtain a loan, keep in mind that the higher your down payment, the lower your monthly payment. A 20% down payment also allows you to avoid paying private mortgage insurance on your loan. You can use Zillow's down payment assistance page and questionnaire tool to surface assistance funds and programs you may qualify for.

Loan Program

It refers to the period of time during which a loan is scheduled to be paid in full. The loan term is commonly expressed in years. For example, a typical mortgage loan may have a term of 15, 20, or 30 years. The choice of the loan term directly affects the monthly and total payments that the borrower will make. Shorter terms often have higher monthly payments, but the borrower pays less interest overall and repays the debt more quickly. Longer terms may result in lower monthly payments but with higher total interest costs over time.

Interest Rate

In the financial context, the interest rate is a percentage applied to the capital that is borrowed or invested. It is the additional amount paid for the use of borrowed money, or the amount earned by investing money. In the context of a mortgage or a loan for the purchase of a home, the interest rate represents the cost of borrowed money. For example, if you take out a mortgage with an interest rate of 4%, you would pay an additional 4% on the principal amount of the loan as interest each year. The interest rate plays a crucial role in determining the monthly and total payments of a loan, as it affects the amount of interest that accumulates over time. When calculating the affordability of a mortgage, the interest rate is a key factor considered along with other elements such as the loan amount and loan term.

Private Mortgage Insurance (PMI)

PMI stands for Private Mortgage Insurance, a type of insurance that lenders may require borrowers to have when applying for a mortgage and making a down payment of less than 20% of the home's value. The primary function of PMI is to protect the lender in case the borrower is unable to make payments, and the loan enters a default situation. If the borrower is unable to pay the mortgage, and the property is sold in a foreclosure, PMI can cover the lender's losses. It's important to note that PMI does not provide protection for the borrower; instead, it is an additional cost that the borrower must bear to secure a loan with a down payment less than 20%. Once the loan balance is reduced to 80% or less of the home's value, the borrower may request the cancellation of PMI.

Property Taxes

This tax is a levy that property owners, such as houses or land, must pay to the local government. The amount of property tax is typically based on the assessed value of the property and is used to fund local public services such as schools, emergency services, and public works. In the context of housing affordability, property taxes are an additional cost that homeowners need to consider when calculating their monthly expenses. Some affordability calculators allow you to input the estimated amount of property taxes to obtain a more accurate estimate of the costs associated with homeownership. These taxes can vary based on location and local tax rates.

Home Insurance

Homeowner's insurance is based on the home price, and is expressed as an annual premium. The calculator divides that total by 12 months to adjust your monthly mortgage payment. Average annual premiums usually cost less than 1% of the home price and protect your liability as the property owner and insure against hazards, loss, etc.

Homeowner's Association (HOA) dues

Homeowner's Association (HOA) dues are regular payments that homeowners in a community with a Homeowner's Association are required to make. These fees are used to fund and maintain common areas and shared services in the community, such as gardens, recreational areas, security, maintenance services, and, in some cases, insurance for the community. The amount and frequency of HOA dues vary depending on the community and the facilities it provides. When considering the affordability of a home, it is important to take into account these additional fees, as they contribute to the monthly costs associated with homeownership in a community with an HOA.