Calculator Use
A mortgage calculator with taxes is an essential financial tool for homebuyers and homeowners alike. Unlike a basic loan calculator that only considers the principal and interest, this calculator incorporates "escrow" items like property taxes and homeowners insurance to give you a true PITI (Principal, Interest, Taxes, and Insurance) estimate. By using this tool, you can accurately budget for the actual monthly check you will write to your mortgage servicer.
- Home Price
- The total purchase price of the property you intend to buy.
- Down Payment
- The amount of cash you pay upfront. This is subtracted from the home price to determine your loan amount.
- Interest Rate
- The annual interest rate charged by the lender for the loan.
- Annual Property Tax
- The estimated annual property tax assessed by your local government. The calculator divides this by 12 to find the monthly portion.
How It Works
When you calculate a mortgage with taxes, the system uses the standard amortization formula for the loan portion and then adds the monthly pro-rated costs for taxes and insurance. The primary formula for the monthly Principal and Interest (P&I) is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1 ]
- M: Monthly Principal and Interest payment
- P: Principal loan amount (Home Price – Down Payment)
- i: Monthly interest rate (Annual Rate / 12)
- n: Total number of months (Years * 12)
Once the P&I is calculated, the calculator adds 1/12th of your annual property taxes and 1/12th of your annual homeowners insurance to reach the total monthly payment.
Calculation Example
Example: Imagine you are buying a home for $400,000 with a $80,000 down payment. You secure a 30-year fixed rate at 7%. Your annual property taxes are $4,800 and your annual insurance is $1,200.
Step-by-step solution:
- Principal (P) = $400,000 – $80,000 = $320,000
- Monthly Interest (i) = 0.07 / 12 = 0.005833
- Number of Months (n) = 30 * 12 = 360
- Monthly P&I = $320,000 * [0.005833(1.005833)^360] / [(1.005833)^360 – 1] = $2,128.97
- Monthly Taxes = $4,800 / 12 = $400.00
- Monthly Insurance = $1,200 / 12 = $100.00
- Total Monthly Payment = $2,128.97 + $400 + $100 = $2,628.97
Common Questions
Why is my mortgage payment higher than the calculator says?
Calculators provide estimates based on current data. Your actual payment might include Private Mortgage Insurance (PMI) if your down payment is less than 20%, or Homeowners Association (HOA) fees which are not typically included in the PITI calculation unless specified.
Do property taxes change over time?
Yes. Property taxes are usually reassessed annually by the county or city. If your home value increases or the local tax rate changes, your monthly escrow payment will be adjusted, which changes your total monthly mortgage payment.
What is an escrow account?
An escrow account is a holding account managed by your lender. They collect a portion of your property taxes and insurance each month (as calculated above) and pay those bills on your behalf when they become due.