Calculating Your Mortgage Costs

by Angela Tharp 05/08/2019

Learning the nuances of buying a home does not take a college degree in mathematics. You do not even need to know calculus or trigonometry. The numbers all come from multiplication, division, and percentages. However, understanding the numbers is not all there is to know about mortgages. Debt finance has a language of its own, so here are some terms you may run across, what they mean, and how to use them.

What the terms mean

  • Mortgage: A mortgage is a legal agreement between a lender (a bank or other creditor) and the mortgagee (the person receiving the funds from the loan) at a specific interest agreement for a specified length of time in exchange for taking the title or deed of the debtor’s property. Until the debt is paid in full, the condition of a mortgage typically is that the full ownership of the property remains with the mortgage lender. In simpler terms, this means that the bank or lender owns the home (or a percentage of it) until the debt is paid. The homeowners have use of the house for as long as they fulfill the terms of the mortgage agreement.
  • Interest. The fee charged for the use of the money in the mortgage based on a percentage of the total amount. Interest percentages can be fixed (they do not change for the life of the loan) or variable—also call adjustable because they can vary based on outside, pre-determined circumstances.
  • PITI. This acronym stands for principle, interest, taxes, and insurance. Together, these four items denote the amount of a mortgage payment when taxes and insurance are held in escrow.
  • Escrow. When monies for taxes or insurance are collected monthly but not paid until they are due—usually quarterly for insurance and annually for taxes—they are held by a third party and protected until paid out.
  • Amortization. The amount of interest you pay monthly on a mortgage is more significant at the beginning because it is based on the amount of principal owed. As the principal reduces, the amount of the payment that is interesting also reduces so more of the fee goes toward the principal. At the beginning of a loan with a fixed interest and fixed length, all the costs, and the principal-to-interest breakdown are available on an amortization chart.

When you buy a home with a mortgage, typically after paying a down payment (a portion you pay outside the mortgage) the rest is amortized using a standard calculation for every payment for the length of the loan. You do not need to learn the formula, though, because several mortgage calculators exist online to do it for you. Try this one with the amounts of your potential purchase, down payment, interest rate, and term (in years).

About the Author
Author

Angela Tharp

Angela M. Tharp, P.A. is a successful Broker Associate, with Watson Realty Corp., a nationwide relocation resource. Angela helps those moving to Duval and St. Johns County find the perfect properties for their unique needs.  

  • Over +500 closed transactions totaling $110 million volume in sales through 2018- I have a proven track record
  • +40% of my yearly income proudly a result from past customer referrals
  • She has lived in Jacksonville for 29 years 
  • With more than a 22 years of industry experience and fierce determination, Angela is currently in the top 2% of the company in Sales, she has consistently achieved the Top 3 Producer in production in her office as well as the sought-after 5 STAR honor in the past years, which is awarded to only 7% of all professionals within a specific industry and market area. 
  • She has achieved the Certified Residential Specialist (CRS) Designation, less than 3% of the top realtors in the nation have this designation. 
  • 1993 Graduated with a Bachelor in Business Administration (Corporate Finance) University of North Florida
  • Angela is dedicated to improving and fine-tuning her knowledge as well as giving back to the community
  • In 2013 she was part of NEFAR's Leadership Academy has been nominated as a Board Member of NEFAR and is serving her 3rd year as a Board Member. 

Her recipe for real estate success includes the use of technology, honesty, ethics, and service. She is dedicated to getting the job done right and prefers to work with clients who appreciate the importance of integrity and technology in business. 

She’ll also work at her clients’ pace and make sure they understand each stage of the buying or selling process. She understands all the details important for a successful relocation and she wants them to feel comfortable with all their decisions. 

Today's market has so many special circumstances to consider, it is essential to have an Expert to guide you through today's market. After all, "My purpose is to help you make good decisions!” 

You can count on her Experience, Dedication, Integrity, she will take you step by step until the purchase of your HOME!