Find out what expenses mortgage calculators typically include

Mortgage calculators typically don’t include taxes and insurance in their initial calculations. Most basic mortgage calculators focus on principal and interest payments only. However, some more advanced calculators let you add estimated property taxes and homeowner’s insurance. For example, if you’re looking at a $300,000 home with a 30-year fixed mortgage at 4% interest, your monthly principal and interest would be about $1,432. If property taxes are around $3,600 a year (or $300 a month) and insurance is about $1,200 annually (or $100 monthly), your total monthly payment would rise to about $1,832.

---

Understanding Mortgage Calculators

Mortgage calculators can be your best friend when estimating your monthly payments. They take the guesswork out of budgeting for your future home. But, do they really cover what you should know? Let’s break down how these calculators work and what they include.

What Do Basic Mortgage Calculators Cover?

A basic mortgage calculator typically focuses on just the principal and interest. This means you enter the loan amount, interest rate and loan term. For example, if you’re looking to buy a $250,000 house with a 30-year mortgage at a 3.5% interest rate, you’d be looking at a monthly payment of about $1,123 for principal and interest.

However, that’s just the tip of the iceberg. It doesn’t take into account other significant costs, like property taxes, homeowner’s insurance, or private mortgage insurance (PMI).

The Role of Property Taxes and Insurance

When you own a home, you’ll have ongoing costs that go beyond just your mortgage payment. Property taxes can vary widely based on location and homeowner’s insurance is another critical expense. In many areas, these costs can add hundreds of dollars to your monthly payment.

Property Taxes

Property taxes are typically calculated as a percentage of your home’s value. For instance, if you live in an area with a tax rate of 1.25% and you buy a $300,000 home, your annual property tax would be about $3,750 or roughly $312.50 per month. This varies significantly based on your location, so it’s essential to check local rates.

Homeowner’s Insurance

Homeowner’s insurance is another necessary expense. The average annual premium is about $1,500, which translates to about $125 a month. This can be higher or lower based on factors like your home’s value and location.

How Advanced Mortgage Calculators Work

If you’re looking for a more accurate picture of your total monthly payment, you’ll want to use an advanced mortgage calculator. These tools allow you to input additional expenses such as property taxes and insurance.

Example Calculation

Let’s say Sarah, a 35-year-old teacher in Denver, is looking at a home priced at $400,000. She’s considering a 30-year fixed mortgage with a 4% interest rate.

1. Principal and Interest: Using a basic calculator, her monthly payment would be about $1,909.
2. Property Taxes: In Denver, the average property tax rate is around 0.5%, which would mean an annual tax of $2,000 or about $167 per month.
3. Homeowner’s Insurance: If Sarah’s insurance costs $1,200 annually, that’s another $100 per month.

So, her total monthly payment would be approximately $2,176.

The Importance of Including PMI

If Sarah puts down less than 20%, she’ll also likely need to pay for private mortgage insurance (PMI). This could add anywhere from $100 to $300 to her monthly payment. Let’s say for Sarah, it’s $150.

Now, her total monthly payment would be $2,326. This is a significant difference from the initial estimate that only included principal and interest.

Things to Consider Before Using a Mortgage Calculator

When you’re using a mortgage calculator, there are a few factors to keep in mind:

1. Accuracy of Estimates: Make sure the calculator you’re using allows for adjustments. For instance, is it easy to input your expected property taxes and insurance costs?

2. Local Variations: Property tax rates and insurance premiums can differ widely by location. Always check local rates to get a realistic estimate.

3. Loan Types: Different types of loans (FHA, VA, conventional) may have different requirements regarding PMI and other costs.

Real-World Scenarios

Let’s look at a couple more examples to illustrate how taxes and insurance can impact monthly payments.

Example 1: Mark and Lisa in Austin

Mark and Lisa are looking at a $350,000 home in Austin, Texas. The interest rate is the same as Sarah’s at 4%.

1. Principal and Interest: Their monthly payment would be about $1,670.
2. Property Taxes: With a tax rate of 2.2%, their annual tax bill would be around $7,700 or about $642 per month.
3. Homeowner’s Insurance: If their premium is $1,800, that adds another $150 per month.

Their total monthly payment would be around $2,462. If they also had to pay PMI (let’s say $200), their total would be approximately $2,662.

Example 2: Mike in Seattle

Mike is considering a home valued at $500,000 in Seattle.

1. Principal and Interest: At 3.75% interest, his payment would be about $2,322.
2. Property Taxes: With a tax rate of 1.1%, he’d be looking at $5,500 annually or about $458 per month.
3. Homeowner’s Insurance: If his insurance costs $1,400, that’s another $117 per month.

Mike’s total monthly payment would be around $2,897. If he has PMI for a lower down payment, that could add another $250, bringing him to $3,147.

The Bottom Line on Mortgage Calculators

Mortgage calculators can be handy tools, but you need to understand their limitations. Basic calculators won’t give you the full picture. To get a realistic estimate of your potential monthly payment, you should factor in property taxes, homeowner’s insurance and possibly PMI.

Next Steps

1. Research Local Rates: Look up property tax rates and average insurance premiums in your area.
2. Use Advanced Calculators: Find a mortgage calculator that allows for additional expenses to get a more accurate estimate.
3. Consult a Professional: If you’re unsure about any estimates, consider speaking with a mortgage lender or financial advisor.

---

FAQ Section

1. Do all mortgage calculators include taxes and insurance?

Not all mortgage calculators include taxes and insurance. Basic calculators typically focus on principal and interest only. Look for advanced calculators that let you input property tax and insurance amounts for a more accurate total.

2. How do I estimate property taxes for my mortgage payment?

To estimate property taxes, find the local tax rate for your area (usually a percentage of your home’s assessed value). Multiply the home price by that rate to get the annual tax amount, then divide by 12 to find your monthly estimate.

3. What is PMI and when do I need it?

Private mortgage insurance (PMI) protects lenders if you default on your loan. You usually need PMI if you put down less than 20% on a conventional loan. The cost varies but typically ranges from 0.3% to 1.5% of the loan amount annually.

4. Can mortgage calculators account for changing interest rates?

Most mortgage calculators use fixed interest rates for simplicity. If you’re considering variable rates, check for calculators that allow for adjustable rates or consult with a lender for a more custom estimate.

5. What happens if I underestimate my monthly expenses?

Underestimating your monthly expenses can lead to financial strain. It’s important to be as accurate as possible with your estimates for property taxes, insurance, and PMI to avoid surprises when you’re ready to close on your home.

---

Bottom line: understanding how mortgage calculators work and what they include can save you from potential financial headaches down the line. Always factor in property taxes, insurance and other costs when budgeting for your new home. Happy house hunting!

Related Articles

• How Accurate Are Mortgage Affordability Calculators
• Can You Include New Appliances In A Mortgage
• How To Calculate Monthly Mortgage Principal And Interest
• How To Calculate Principal And Interest For Mortgage