How to Calculate Your Mortgage Payment

Calculating your mortgage payment can be confusing.  Some mortgage lenders briefly describe your total payment just as PITI and never really share the full details of the make up of your mortgage payment.  Your mortgage payment is made up of 4 parts:  principal, interest, taxes and insurance also known as PITI. 
 
The first part, the principal is the portion of your mortgage payment that actually pays down the mortgage balance.  The second part, the interest is the cost the lender charges for borrowing the money.  To determine this figure use the Mortgage Calculator provided.
 
The third portion of your mortgage payment represents the property taxes.  The mortgage lender will calculate your monthly tax amount by taking your annual property taxes and dividing it into 12 equal payments.  This way you are only paying 1/12 of the tax each month.  The lender holds these funds in an account called an escrow account and pays the taxes when your county, city or township requires. 
 
The last portion of your mortgage payment represents the hazard insurance or better known as your homeowners insurance.  Unfortunately no lender will allow your new loan to close until you provide proof of this insurance.  This insurance protects you and your lender in partnership in case of fire, bad weather and other incidents.  The mortgage lender will calculate your monthly insurance amount by taking your hazard insurance premium and dividing it into 12 equal payments.  Again you only pay 1/12 of the insurance premium each month.  The lender will also put these funds into that escrow account and pay the annual premium on its anniversary date.