When calculating a mortgage loan, many people stop at the principal and interest. But in reality, your monthly payment often includes much more: property taxes, homeowners insurance, and—if your down payment is small—private mortgage insurance (PMI). For a complete overview of mortgage strategies and calculations, explore our https://calculatingamortgageloan.com/guide-to-calculating-a-mortgage-loan/
If you want to know your true monthly housing cost, you need to factor in all four elements, often summarized as PITI + PMI.
1. The Full Breakdown of Mortgage Costs
Principal (P)
The portion of your payment that goes toward reducing the loan balance.
Interest (I)
The cost of borrowing, based on your loan’s interest rate.
Taxes (T)
Property taxes are typically collected monthly and placed into an escrow account, which your lender uses to pay your annual tax bill.
Insurance (I)
Homeowners insurance protects against risks like fire or theft. Lenders usually require you to pay this monthly into escrow.
Private Mortgage Insurance (PMI)
If your down payment is less than 20%, most lenders require PMI. This protects the lender (not you) in case of default. PMI can add 0.3% to 1.5% of the loan amount per year, depending on your credit and down payment.
2. Step-by-Step Example
Let’s calculate a $250,000 loan with PMI, taxes, and insurance included.
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Loan Amount: $250,000
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Interest Rate: 6%
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Loan Term: 30 years
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Base Payment (Principal + Interest): ≈ $1,499
Now add the extras:
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Property Taxes: $3,000/year → $250/month
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Homeowners Insurance: $1,200/year → $100/month
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PMI: 0.5% annually = $1,250/year → $104/month
Total Monthly Payment:
$1,499 (P+I) + $250 (Taxes) + $100 (Insurance) + $104 (PMI) = $1,953
3. Removing PMI Later
The good news: PMI isn’t forever. You can request its removal once you reach 20% equity (loan-to-value ratio of 80%). In many cases, it automatically ends when you hit 22% equity.
Tips to get rid of PMI faster:
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Make extra principal payments.
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Refinance if your home value rises significantly.
4. Why It’s Important to Include These Costs
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Budgeting Accuracy – Knowing your true monthly cost prevents surprises.
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Loan Comparisons – Two loans with the same principal and interest might differ greatly when taxes and insurance are included.
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Home Affordability – Factoring in PITI + PMI helps you avoid buying “too much house.”
5. Quick Formula for Full Monthly Payment
Monthly Payment = Principal + Interest + (Annual Taxes ÷ 12) + (Annual Insurance ÷ 12) + (Annual PMI ÷ 12) This simple formula ensures you see the complete cost picture.Conclusion
Calculating only principal and interest tells part of the story—but your actual monthly mortgage payment often includes PMI, property taxes, and insurance. By factoring in these expenses from the start, you’ll know exactly what to expect each month and avoid financial surprises.