Let's learn about each part that makes your total monthly mortgage payment. Then, plug in your information and see what you'd pay in your Texas county!
Mortgage calculators help us determine how much we can afford when buying a home. By the end of this article, you’ll be able to get a better idea of what you’d pay each month. We’re including all the major parts in your calculation: principle, interest, insurance, and even the property taxes based on your Texas county.
The four parts of a mortgage
First, you need to understand what makes up your mortgage payments. Principal, interest, taxes, and insurance (PITI) are the four basic parts of a mortgage. Depending on where you live, you may also have an HOA fee due each month.
Principal is the part of your mortgage that represents how much you actually paid the seller. When your principle reaches zero, your house is paid off. Not all of your monthly mortgage payment amount goes to principal. In fact, the amount that goes to principal each month will steadily increase through the life of your loan.
Interest is what you pay for the ability to borrow money. Your lender takes on some risk when they allow borrowers to use their money. So, interest is tacked on. You’ll see interest rates expressed in percentage forms.
Let’s say your interest rate is 5%. Every month, your interest payment would equal 0.416% of your principal. Divide your interest rate by twelve, and then multiply that answer by your remaining principal to calculate how much interest you’d pay in a given month.
Taxes are added into your monthly mortgage payments, too. The amount you pay hinges on the value of your property and where you live. Each Texas county has its own tax rate. They range from below one percent to the mid-two’s. Texas does not collect a state-level property tax, so all the taxes you pay in your mortgage payments will be used within your local community.
» CHECK IT OUT: Find your county’s property tax rate in Texas
Insurance comes in two basic forms: mortgage insurance and homeowner’s insurance. Lenders require you to pay mortgage insurance to protect them in case you can’t make your payments one day. Homeowner’s insurance protects your home and your belongings in case of disaster.
Conventional loans will have you pay mortgage insurance until you have at least 20% equity in your home. FHA loans will have mortgage insurance attached to them no matter how much you put down.
Mortgage calculator - taxes included
Here are some tips on how to use a mortgage calculator:
- For the purchase price: If the monthly payment comes out too high after putting in all your other numbers, the purchase price will probably be the number that has to come down.
- For the down payment amount: if you’re not a veteran, spouse of a veteran, or looking to buy in a USDA eligible area, then plan on putting down at least 3.5% to qualify for the FHA program.
- For the mortgage period (or “term”): choose either fifteen years or thirty years. Most borrowers opt for the thirty-year option to keep monthly payments lower. But a fifteen-year term will save on interest in the long run.
- For the interest rate: the best way to find your interest rate is to get pre-approved (for free)! Interest rates have too many variables to make guesses on.
- For the annual insurance rate: 0.50% is a good estimate to start with. If you live in a coastal area, your annual insurance rate may be closer to 0.75%.
- For the annual property tax rate: find your county’s tax rate, and plug it in here. 2.5% is a high-end, conservative estimate.
Other kinds of mortgage calculators
There are other types of mortgage calculators besides purchase calculators. Amortization schedules help you see how much equity you’ll have in any given month. Since the dollar amount of interest will change each month as you gradually pay off principal, amortization schedules can be used to see how you’ll fare in different scenarios.
For instance, if you’re trying to find if buying is better than renting, you may need to see the amortization schedule. It could be that at the end of three years, buying a house will have already saved you money compared to your current renting situation.
» READ MORE: Follow this guide to see if buying is worth it for you
And then there are refinance calculators. They take lots of things into consideration: the loan terms you currently have vs. the new terms you’d get, the breakeven point, the point where you begin to save, and more.
How accurate is your estimate?
You can get a pretty good idea of your monthly payments with a mortgage calculator. But there are variables you won’t know about for sure.
The very best way to get answers is by getting started with an experienced mortgage adviser. Let’s find exactly what you qualify for today - no strings attached.