Mortgage Calculator with PMI and Escrow

What goes into a US monthly mortgage payment

A US lender quotes more than principal and interest. Page 1 of the Loan Estimate, the standard three-page form a lender gives you after you apply for a mortgage, adds every recurring housing cost the lender collects into one line called the Estimated Total Monthly Payment. This calculator builds that same line from four parts:

Total = M + PMI + T + H

• M is principal and interest on the loan, where the loan is the home price minus the down payment. It is the level fixed-rate payment, the same formula and month-by-month schedule as the general mortgage calculator.
• PMI is private mortgage insurance: the yearly PMI rate times the loan amount, divided by 12. It is charged only when the down payment is below 20% of the price, and only until the Homeowners Protection Act says it must end.
• T is one twelfth of the yearly property tax bill.
• H is one twelfth of the yearly homeowners insurance premium.

T and H together are the escrow payment. When a lender requires an escrow account (also called an impound account), it collects these amounts with every payment and pays the tax bill and the insurance premium on your behalf when they fall due. Each monthly amount is rounded to the cent.

PMI ends on its own. Under the Homeowners Protection Act, for a fixed-rate loan the PMI requirement terminates automatically on the date the balance is first scheduled, on the original amortization schedule, to reach 78% of the home's original value (the lower of the sale price and the appraisal; this calculator uses the price you enter). You may ask your servicer in writing to cancel earlier, once the scheduled balance reaches 80%. And whatever the balance, PMI cannot be charged after the midpoint of the loan term. The schedule above keeps PMI in every payment up to and including the first one that takes the scheduled balance to 78% or the midpoint payment, whichever comes first, and leaves it out of every later payment.

These rules cover borrower-paid PMI on a residential mortgage as the Act defines it: a loan on a single-family home that is your principal residence, closed on or after July 29, 1999 (one year after the Act became law on July 29, 1998). Two kinds of loan are treated differently. If the loan was classed as high risk when it was made, the 80% request and the 78% automatic termination do not apply; PMI still ends at the midpoint, and on a high-risk loan above the conforming loan limit it also ends when the scheduled balance reaches 77%. Lender-paid PMI, where the lender pays the premium and the cost is usually built into a higher interest rate, is outside these termination rules altogether: it cannot be cancelled and ends only when the loan is refinanced, paid off or otherwise terminated. The calculator applies the standard borrower-paid rules, so check your Loan Estimate if your loan may be one of these exceptions.

Worked example: the CFPB sample Loan Estimate

The Consumer Financial Protection Bureau publishes a filled-in Loan Estimate (form H-24(B)) for a $180,000 purchase with $18,000 down, which is 10% and below the 20% line, so the lender requires PMI and an escrow account. The loan is $162,000 over 30 years at a fixed 3.875%.

1. Principal and interest: $761.78.
2. Mortgage insurance: the form shows $82 a month. That is 0.6074% a year of the loan amount; the form gives the dollar figure, not a rate.
3. Escrow: page 2 lists property taxes of $105.30 and homeowners insurance of $100.83 a month, together $206.13, shown on page 1 as $206.
4. Total: $761.78 + $82.00 + $206.13 = $1,049.91, shown as $1,050.

On the original schedule the balance first reaches 78% of the $180,000 price with payment 80, in year 7. That is why the form's Projected Payments table has a column for years 1 to 7 with mortgage insurance and a second column from year 8 without it, where the total drops to $968. Every figure here is the same as on the published form. The borrower could have asked to cancel from payment 68, when the scheduled balance reaches 80%; the form shows only the automatic date, as Regulation Z requires.

What moves the total

With the calculator's starting inputs, a $400,000 home with $40,000 down at 6.5%, the first payment is $2,975.44: $2,275.44 principal and interest, $150.00 PMI and $550.00 escrow. These inputs are ordinary starting values, not official figures or quotes.

Putting 20% down

With $80,000 down, PMI is not required at all. The loan is smaller, so principal and interest falls to $2,022.62, and the first payment is $2,572.62. With $40,000 down, PMI runs for 109 payments (9 years 1 month) and costs $16,350.00 in total before it stops and the payment falls to $2,825.44.

A higher property tax bill

Property tax is set by the local governments where the home is, usually from its assessed value, so there is no single national rate to look up. If the yearly bill were $7,200 instead of $4,800, the escrow part would rise to $750.00 and the first payment to $3,175.44. Unlike principal and interest, escrow is recalculated as taxes and premiums change, so the total can go up after closing even on a fixed-rate loan.

When the midpoint comes first

The 78% date depends on how fast the balance falls. At a high rate with a small down payment (3% down at 20%, for example) the balance falls so slowly that the midpoint, 15 years into a 30-year loan, arrives first: PMI stops after payment 180 even though the balance is still above 78%.

Frequently asked questions

Sources

• Consumer Financial Protection Bureau, Loan Estimate sample for a fixed-rate loan (form H-24(B))
• Consumer Financial Protection Bureau, Loan Estimate explainer
• 12 U.S.C. 4901, Homeowners Protection Act definitions (cancellation and termination dates)
• 12 U.S.C. 4902, termination of private mortgage insurance
• 12 U.S.C. 4905, lender paid mortgage insurance
• Consumer Financial Protection Bureau, What is private mortgage insurance?
• Consumer Financial Protection Bureau, When can I remove PMI from my loan?
• Consumer Financial Protection Bureau, What is an escrow or impound account?
• Regulation Z, 12 CFR 1026.37(c): projected payments, including when mortgage insurance ends