How to Use This Tool
Enter the price, the down payment and the rate. The tax and insurance rates are percentages of the property value per year and vary hugely by location, so replace the defaults with your own figures.
Principal and interest is a partial answer
The advertised payment covers only the loan. Property tax and homeowners insurance are usually collected monthly into escrow alongside it, and if the down payment is under 20 per cent, private mortgage insurance is added too.
$300,000 house, 10% down, 6.5%, 30 years
loan $270,000
principal and interest $1,706.58
property tax 1.10%/yr 275.00
insurance 0.35%/yr 87.50
PMI 0.50%/yr 112.50
---------
what actually leaves $2,181.58
that is 1.28x the quoted figure, $475 a month
PMI has two exit dates and only one of them is automatic
Under the US Homeowners Protection Act, PMI on a conforming loan works like this. Once the balance reaches 80 per cent of the original value you may request cancellation in writing. The servicer must terminate it automatically only when the balance reaches 78 per cent.
On the example above those two dates are month 95 and month 109 — 7.9 years against 9.1. Fourteen payments of $112.50, or $1,575, paid for nothing simply because nobody writes to tell you the first date has arrived.
Over the whole run the PMI bill is $12,262 if you wait for automatic termination and $10,688 if you ask at the earliest date. Putting a reminder in a calendar for that month is the highest hourly rate available in this entire calculation.
The down payment does two things at once
A larger down payment reduces the loan, which reduces the interest, and separately removes PMI entirely at 20 per cent. Those are two different savings and they compound: on this example, going from 10 to 20 per cent down cuts the monthly outgoing from $2,181.58 to $1,879.46, of which $112.50 is the PMI disappearing and the rest is the smaller loan.
What this deliberately does not do
It does not tell you what you can afford. Lenders qualify on gross income and a debt-to-income ratio that ignores childcare, commuting, food and every other real cost. This page computes what a given mortgage costs, which is the input to that decision rather than the answer to it.
Loan types differ
FHA mortgage insurance is not PMI and, on most current FHA loans with less than 10 per cent down, lasts the life of the loan rather than cancelling at 78 per cent. VA loans have a funding fee instead. This page models a conventional loan with cancellable PMI.
