You’re now the proud owner of a home – congratulations! But do you know what your mortgage payment includes, and everything that goes into making up that monthly payment you’ll be making for the life of your loan (or until you decide to sell)?
Principal and interest
First, part of your mortgage payment includes repaying your original loan amount. Your mortgage payment includes the principal amount of your loan and the interest on that principal. Your payment is calculated based on the total amount you borrowed, your loan’s length and your interest rate. If you have a fixed-rate loan, your monthly payment won’t change over the loan term, but more of your payment will be applied to the principal and less to interest as time passes.
Property tax
Another part of your mortgage payment includes your property tax if it’s paid through escrow. Your tax rate is determined by where you live based on your home’s estimated value. Property taxes may increase your mortgage payment by hundreds each month, depending on these factors.
Insurance
Lastly, your mortgage payments may include your insurance if it’s paid through escrow. There’s the kind of insurance that covers basic homeowner issues, such as theft and fire, and then there’s Private Mortgage Insurance, also known as PMI. PMI is added into your mortgage if you didn’t put down 20% upfront, and helps protect your lender just in case you default on your loan.
The bottom line
Of course, there are other financial considerations when it comes to homeownership such as monthly HOA fees, costs associated with repairs and renovations, added insurance for natural disasters, plumbing and electrical needs, and various other costs that can add up over time as you continue to care for and evolve your home.
Make sure you’ve got a budget in place to help you take care of everything that may come on top of your monthly mortgage payment, too. It always pays to be prepared! Work with one of our experienced real estate agents who can assist you to find a home in your budget, and connect you with the mortgage lending resources we have within our family of companies!