If you're going to have a mortgage with an escrow account, your monthly payment gets divided four ways. Since it covers your principal, your interest, your property tax and your homeowners insurance, it's referred to as a PITI payment. To calculate it, you use a spreadsheet program to figure out the PI payment, then you estimate your TI payment. While it's hard to predict exactly how your lender will calculate your escrow TI payment, you can estimate the highest that it is likely to be and, with any luck, you'll get a pleasant surprise.
Using PMT Spreadsheet Function
Use the PMT, which is an abbreviation for payment, function in your spreadsheet to solve for your principal and interest payment based on the length of your loan, the amount of the loan and your interest rate. For example, the command that will solve for the payment for a $225,000, 30-year loan at 5.25 percent interest would be "=pmt(5.25%/12,30_12,-225000)" in Excel or Google Spreadsheets or "=pmt(5.25%/12;30_12;-225000)" in Apache OpenOffice Calc. Entering the command will cause the spreadsheet to display the correct monthly payment -- $1,242.46.
When you enter the command, leave out the quotation marks, and change the numbers to reflect your particular loan.
Entering Property Taxes and Insurance
Add your annual property taxes together with your annual homeowners insurance premium. For instance, if your annual insurance premium is $1,050 and your annual tax payments are $1,825, your combined cost would be $2,875.
Computing Monthly Tax and Insurance
Divide the combined cost by 12 to find your monthly tax and insurance payment. If the annual cost is $2,875, the monthly cost would be $239.58.
Adding Principal and Interest Payment
Add your principal and interest payment to your estimated tax and insurance payment to find your total PITI payment. In this example, $1,242.46 plus $239.58 would give you a combined payment of $1,482.04.
Depositing Into Escrow
You may also have to deposit money into your escrow account to start your mortgage. Federal law allows your lender to have enough money in your escrow account so that it will always have a positive balance equal to at least two month's worth of tax and insurance payments.
Including Private Mortgage Insurance Premium
Some mortgages also carry private mortgage insurance or a mortgage insurance premium. To add it into your PITI, divide its total annual premium by 12. A $2,150 PMI premium would cost an additional $179.17 per month, for example.
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