A Quick And Easy Way To Calculate Monthly Mortgage Payments

By Christopher Carter - Real Estate Broker Associate

July 11, 2024

When buyers know they will be using mortgage financing to purchase a house or condominium they see and like, one of their first questions is usually "How much will our monthly payment be?" Today's article offers a quick way to figure out monthly Principal and Interest payments with just a loan amount and an interest rate. With all the current media attention on mortgage rates, you should be able to ballpark a usable rate to plug into the formula. If you have already contacted a Mortgage Loan Originator, he or she can provide you with a range of interest rates for which you may qualify.

Very important - the calculation described here ONLY covers the Principal and Interest portions of a monthly mortgage payment. Property taxes, homeowners/hazard insurance, and any mortgage insurance are NOT part of this calculation. When escrowing tax and insurance payments, they become part of the total monthly PITI (Principal, Interest, Taxes, Insurance). This is also true of any monthly mortgage insurance payments when a down payment is less than 20%.

• Principal - money you borrowed
• Interest - fee for using someone else's money

Monthly mortgage payments include a portion of the Principal plus monthly Interest (annual rate divided by 12).

Calculating an amortization schedule (paying off with equal monthly payments) for a mortgage is mathematically rather complicated because Principal and Interest amounts change each month while the total loan payment remains the same from month to month. Here is an earlier article that provides an introduction to amortization: Back To Basics on Real Estate Finance - Amortization: www.thefloridarealestateblog.com

Today we are discussing a much easier method that involves using a Mortgage Factor, which is a multiplier applied to the loan amount. This side steps some complicated math or searching for an online amortization calculator.

Here is the formula:

Loan Amount divided by 1,000, times Mortgage Factor = monthly Principal & Interest payment

Keep in mind that we are starting with the loan amount, NOT the purchase price so you first have to figure out how much down payment will be put into the deal, then subtract that from the purchase price.

Let's work through an example on 30-year fixed rate financing:

• Purchase price: $480,000
• 20% down payment: $96,000
• $480,000 - $96,000 = $384,000 loan amount
• Loan amount divided by 1,000 = 384
• 7% interest rate
• Factor from chart: 6.65
• 384 times 6.65 = $2,553.60 monthly Principal and Interest

Loan Amount ÷ 1000 X Mortgage Factor = monthly P & I payment

This Mortgage Factor method does NOT replace speaking with a licensed Mortgage Loan Originator who will determine a suitable mortgage program and interest rate based on the personal financial information submitted in an application.

Though it does provide a very straightforward method for determining preliminary affordability based on different purchase prices.

Remember - this method ONLY calculates monthly Principal and Interest payments. It does NOT include:

• Property taxes
• Homeowners and hazard insurance
• Mortgage insurance (with less than 20% down payment)

Taxes and insurance can add significant amounts to a monthly PITI payment. When considering putting an offer on a house or condo you like, ask to see the current property tax bill and ask sellers what they are paying for insurance. Your tax and insurance bills will likely be higher, though you need a general idea of costs.

That's it for this week, be sure to check out: www.TheFloridaRealEstateBlog.com for more articles.

Editor's Note: Christopher Carter is NOT an attorney. He does not give legal advice. For interpretation and application to specific circumstances of anything you read in this article, you must speak with a Florida-Licensed attorney.

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