If you’ve ever been looking for a home, or even contemplating buying a home, you’ve probably used an online home loan calculator (there’s a good one right on this page, in fact, labeled “Estimate Your Payment”) at some point.  Mortgage payments are typically made up of four components: Principal, Interest, Taxes, and Insurance … PITI.  I say typically because some borrowers choose to pay their Taxes and Insurance separately, but that’s another blog post for another day.

Principal and Interest is easy to determine – it’s based on the amount of money you’re borrowing, the interest rate, and the years of the loan (15 or 30 years, for example).  Taxes are also easy to determine … by using the tax rates found throughout the New River Valley and multiplying the assessed value of the house by that rate, you can easily find the taxes.  But how do you figure insurance.

My friend Eric Johnsen, at State Farm in Christiansburg, told me one time that if I multiplied the value of the house by .0025 I could get a reasonable approximation of what the annual insurance cost for a particular home would be.  It assumes a couple of things, of course – (1) that the insured value of the home is the same as the sale price of the home, as well as (2) a deductible of $1000.  But it works really well – on my home, for instance, it comes within $23 of the actual yearly cost of the policy.

Eric wrote me today and said that over the last 15 policies he’s looked at, .002516 is now the average.  So, the next time you’re surfing the web late one night and you wonder just how much that house down the street would be, you’ll have all the information you need to estimate your payments.

Thanks, Eric!

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