Payment calculation? Your monthly mortgage payment consists of P&I (principal and interest) plus property taxes, homeowners insurance, and mortgage insurance when applicable. Together these components are called PITI. Use an amortization calculator to get exact numbers for your situation.
How Payment Is Calculated
The principal and interest portion of your payment is calculated using an amortization formula. For a $300,000 loan at 6.5% over 30 years, the P&I payment is approximately $1,896 per month. The formula takes the loan amount, interest rate, and loan term to determine a fixed monthly payment that pays off the loan over the term.
The remaining components are added on top. Property taxes vary by location and are typically 1-2% of the home value per year. Homeowners insurance covers the property against damage. Mortgage insurance is required when your down payment is less than 20% on a conventional loan.
PITI Components Explained
Principal: The amount you borrowed. Interest: The cost of borrowing. Taxes: Annual property taxes divided by 12. Insurance: Annual homeowners insurance divided by 12. MI: Mortgage insurance premium, either monthly or upfront.
Patrick Kevin Fagan recommends using an online amortization calculator to model different scenarios. Change the loan amount, rate, or term to see how each factor affects your monthly payment. This is the best way to shop for a mortgage that fits your budget.
