How this number is made
The payment lenders quote is often principal and interest only. The payment you live with adds property tax, homeowners insurance, and sometimes an HOA. This page separates them so a low rate doesn’t hide a high tax bill.
- Enter the price and the percent you will put down. The loan is the rest.
- Use the interest rate on the note, not APR, if you want the contractual payment. APR includes some fees and will not match the coupon.
- Add this year’s tax and insurance. They move. The loan payment does not, on a fixed rate.
Formula
Monthly principal and interest = P × r(1+r)^n ÷ ((1+r)^n − 1), where P is the loan, r is the monthly rate, and n is the number of months. Housing payment adds tax ÷ 12, insurance ÷ 12, and HOA.
Worked example
A $425,000 home with 10% down is a $382,500 loan. At 6.5% for 30 years the principal-and-interest piece is about $2,418. Tax of $4,200 and insurance of $1,800 add $500. The housing payment is about $2,918 before HOA or mortgage insurance.
Questions
Where is PMI?
Not included. Private mortgage insurance is common under 20% down and depends on credit, loan type, and insurer. Add that premium yourself on top of the housing payment if your lender quoted one.
Why is so much of the early payment interest?
Interest is charged on the remaining balance. Early on, the balance is almost the whole loan, so the interest slice is large and the principal slice is small. The chart shows that shift year by year.