Understanding True Costs

use our the calculator below to add up the true costs of a mortgage

The total cost of a mortgage has four elements: 1) Principal: the mortgage loan amount to be repaid; 2) Interest: cost lenders charge for use of the money; 3) Taxes: local government tax assessments on the property; and 4) Insurance: to replace the home in the event of a disaster

Below are four (4) items to add up and understand the full cost of a mortgage

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understand true costs

Understanding Escrow

The total cost of a mortgage has four elements (PITI):

  • Principal
    represents the amount you borrow, which has to be repaid over time.
  • Interest
    the cost that lenders charge for the use of their money during the repayment period
  • Taxes
    an assessment that local governments collect on property to pay for local services. Property tax rates will vary by location and can affect your total cost and affordability
  • Homeowners Insurance
    required by the lender to replace the value of the loan in the event of a disaster such as fire, earthquake, flood, etc.

These four cost components equals the monthly mortgage payment you will pay each month:

Principal + Interest + Taxes + Insurance (PITI)
= Total Cost of Your Mortgage Loan

Many times buyers ignore these additional costs when figuring how much of a home they can afford.

View more detail information and illustrations

(note: links to our companion site
www.SayLending.com)

understand true costs

Local Property Taxes

Your county and city may levy taxes on your property. These taxes pay for government services such as schools, roads, police, and other community services.

The annual tax is usually calculated as a percentage (factor) of your property's appraised market value. For example, an assessment may look like this:

$0.94 per $100 in appraised value
this calculates into a tax factor of 0.94% on the appraised value of your home

Contact your local community and county officials to determine your county and city tax factor.

At your home closing, you will be required to prepay up to one year's cost of your property tax. Then each month, your loan payment will include 1/12 of the annual property tax that will be deposited in your escrow account until the property tax payment is due.

Estimate Payment
County tax rate (0.00XX):
City tax factor:
Other tax factor:
Appraised home value:
 

this calculation to be added below

understand true costs

Homeowners Insurance

You may be required to carry hazardous insurance on your home in the event of a fire, flood, disaster, and any other natural disaster that destroys or partially destroys your home.

The insurance will protect your investment (and the lender's) and repair any damage that may occur. The annual premium may vary depending on your home area and location. You must provide proof of insurance before closing and settlement.

At your closing, you may be required to prepay up to one year's cost of hazardous insurance. Then each month your loan payment will include 1/12 of the annual hazard insurance premium to be deposited in your escrow account until payment is due.

Annual Cost of Insurance:

this calculation to be added below

understand true costs

Other Monthly Costs

There may be other associated costs that may be included in your escrow payment such as Private Mortgage Insurance, tax liens if any, etc. Check with your real estate agent or your legal council to determine what other charges may apply.

Private Mortgage Insurance (PMI) is mortgage default insurance that is required for all conventional mortgage loans with less than a 20% down payment. If PMI is required as part of your loan, the initial annual premium will be included in your closing costs while your subsequent premiums (1/12th of your annual premium) will be included in your monthly mortgage payments and deposited in your escrow account.

Annual Cost of PMI:

this calculation to be added below

understand true costs

Estimating Monthly Costs

You can use the calculation below to estimate your total mortgage cost. The calculation will estimate the amount of the mortgage payment each month.

First: Calculate Your Monthly Mortgage Payment
Enter the amount to be borrowed: $
Enter the Repayment Terms: (1)
Enter Your Quoted Interest Rate %: %
Monthly Mortgage Payment:  $
Next: Calculate Your Monthly Mortgage Payment
(input from above)
Est. Monthly Tax:
Est. Monthly Insurance:
Est. Monthly PMI:
   
Monthly Payment for Escrow: $
Total Monthly Payment: $
(1) Repayment terms are the number of months in your loan. These calculations are based upon the assumptions you entered. Please note that rounding error may make a small difference in calculations. The accuracy of the calculation and the circumstances which you may qualify may result in different calculations.