Calculating a mortgage payment “in your head”

Any real estate agent who has been in the business more than a few minutes and has shown a home or two has been asked the question, “how much would the payments be?” Chances are the agent does not have their mortgage calculator in their hands to input the mortgage rate, loan amount and other important factors. However, they do have their brain available and can easily estimate a mortgage payment for any home.


Real estate agents are not expected to be mortgage professionals but customers shopping for a new home do expect them to be able to answer the monthly payment question. There is a very simple way of calculating a mortgage payment based on any rate and it can easily be done without a calculator or even pen and paper.

Calculating the interest would be quite straight forward. The trick is always getting the principal added back in to the payment. So, in disregard to accuracy to the penny (or even the dollar for that matter) you can use some historic data to calculate the mortgage payment.

First you need to know the sales price. This should be simple for anyone. Then you need to know the down payment amount. Subtract the down payment from the sales price and you have a good idea of the loan amount provided it is not a loan that allows mortgage insurance or other costs to be financed into the loan. Next you need the interest rate. It would be almost impossible for the agent to know the actual interest rate of the client so use a fair average of where rates are for the day - the agent and shopper both likely know this number.

For most homes in America priced around $150,000 to $300,000 the property taxes and home owner’s insurance will equal about 1% of the loan amount per year. Using this very rough and loose average to add 1% to the interest rate for the day. Still a pretty easy calculation but what about that principal?

You are in luck because you are not being asked to provide an amortization schedule but only a payment. For a 30 year amortization the first year’s principal is about 1.2% of the loan amount. Add 1.2 to your total of the interest rate plus the 1% for taxes and insurance. Want to see an example?

Loan amount $120,000

Interest rate 5.5%

Taxes and insurance 1%

Principal 1.2%

5.5 + 1 = 6.5 + 1.2 = 7.7

Now comes the fun part. Break the loan amount down into 1s and 0s. Like 100,000 and 10,000 twice. It is much easier to calculate mortgage payments when you are multiplying by one!

100,000 x 7.7 = 770

10,000 x 7.7 = 77 (70 x 2 = 140) (7 x 2 = 14) (140 + 14 = 154)

770 + 154 = 924

A good estimate of the monthly payment for a $120,000 loan at 5.5% interest amortized over 30 years is $924 per month PITI. Obviously if you are an agent you want to disclaim many times that you cannot be held to this and only the mortgage professional can provide an accurate payment based on many different criteria

Contact The Mortgage Mark With any questions!!
 
http://www.themortgagemark.com/
 
mwilkins@capitalfmc.com