How to Calculate Mortgage Payments With Taxes

Undeniably, buying a home for you and your family is one of the most important decisions in your life. And if your monthly earnings and credit score allow you to qualify for a mortgage loan with a prime lender, you are just one step away from moving into the home of your dreams with your loved ones. However, there is always one “But…”. In this particular case this “But” involves the property taxes and insurances which make an inseparable part of your monthly payment, and which could become the spec of tar to spoil the whole pot of honey, if overlooked. This intro will shed more light on the hidden taxes and fees that go into your monthly mortgage payment and are usually typed in small print at the back of your mortgage agreement.

When calculating your real-term mortgage payment per month, you should first calculate the monthly interest and principal payment based on the total amount of your mortgage loan, the term of the mortgage and the average annual interest rate. And if maths wasn’t one of your favourite subjects at school, you can just find a web-based mortgage calculator, throw all these ingredients in and get the precious number. Your real estate broker should be able to give you relevant information about the current property taxes in your area.

This being done, you have to now figure out how much the current property taxes are. Most Canadian provinces levy property tax which is based on the value of the land and its use. There is an annual reassessment cycle in some of the provinces, with other provinces having lengthier periods between valuations. Depending on the location of your property and its total floorage in square meters (or feet), you can divide the floorage number by the number of payments you have to execute on your mortgage. It could be twelve, if you are on an annual repayment plan, or twenty-six, if your payments are to be made every two weeks.

By the same token, you have to determine how much your property insurance will cost a year and divide it by the number of mortgage payments payable each year of your mortgage’s term.

If you are a first-time home buyer or you have bought your property with a down payment of less than twenty percent of its value, your total monthly payment will certainly include a private mortgage insurance (PMI), which has been designed to protect lenders against loss in case a borrower proves incapable of repaying his or her loan. At the same time, the private mortgage insurance gives more people a chance to become homeowners – with a PMI, the down payment on your mortgaged property could be as low as three or five percent. Finally, take the calculated monthly interest and principal payment, add all property insurances and taxes, and you will get your real mortgage payment. Remember that getting a large screen TV is not enough if you want to get the bigger picture, but the good news is that some more sophisticated web-based mortgage calculators can calculate your taxes and insurances.