If your mortgage payment included just principal and interest, you could use a bare-bones mortgage calculator. Here are the key components in play when you calculate mortgage payments:
- Principal: Typically, this would be the home’s purchase price, less any down payment It’s the amount you borrow. If you’re buying a $500,000 home and put down $100,000, the principal would be $400,000.
- Interest: What the lender charges you to loan you the money. Interest rates are expressed as an annual percentage.
- Property taxes: The annual tax assessed by a government authority on your home and land.
- Homeowners Insurance: Protects you from the things that can damage your home. It covers wind/hail damage, fires, lightning, theft, flooding, earthquakes, and more.
In addition, depending on the property and Loan program, you may need to factor in the following:
- Mortgage insurance: If your down payment, is less than 20% of the home’s purchase price, or your Loan To Value is greater then 80%, you’ll likely pay mortgage insurance. It protects the lender’s interest in case a borrower defaults on a mortgage. Once the equity in your property increases to 20%, the mortgage insurance is canceled, unless you have an FHA loan.
- Homeowners association (HOA) fee: This is paid by homeowners to an organization that assists with upkeep, property improvements and shared amenities.