Question 1

How do you calculate a monthly mortgage payment?

Accepted Answer

Monthly mortgage payments are calculated using the formula: M = P[r(1+r)^n]/[(1+r)^n-1], where P is the loan principal, r is the monthly interest rate (annual rate divided by 12), and n is the total number of payments. For a $280,000 loan at 6.5% over 30 years, the monthly principal and interest payment is about $1,770.

Question 2

What is PMI and when is it required?

Accepted Answer

PMI (Private Mortgage Insurance) is required when your down payment is less than 20% of the home price. It typically costs 0.3% to 1.5% of the original loan amount per year and is added to your monthly payment. PMI is automatically removed once your loan-to-value ratio reaches 78%.

Question 3

How much can you save by making extra mortgage payments?

Accepted Answer

Extra mortgage payments go directly toward reducing principal, which lowers the total interest paid over the life of the loan. For example, paying an extra $200/month on a $280,000 loan at 6.5% can save over $80,000 in interest and pay off the loan about 7 years early.

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