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What’s Included in a Mortgage Payment?

When you found your dream home, you used an online mortgage calculator to determine what your monthly payments would be.  You may be surprised to know that your mortgage payment is not only the money you owe for buying your home. It actually includes several other payments that must be made on a monthly basis, thereby increasing your monthly mortgage payment.

What’s included in a monthly mortgage payment?housecalc

Principal – A portion of the money you borrowed to buy your home is due each month. Depending on the structure of your loan, your principal amount will increase each time you make a payment.

Interest – The mortgage lender will charge you interest. The amount of interest you pay each month decreases the same amount that the principal increases, keeping the Principal and Interest portion of your mortgage payment the same from month to month.

Real Estate Taxes – When the mortgage lender owns most of your home, they will pay the real estate taxes from your escrow. Each monthly payment will include 1/12 of your total real estate tax bill. The mortgage lender will ensure that the payment is made each month.

Insurance – When the mortgage lender owns most of your home, they will require that you maintain a homeowner’s insurance policy to protect their interest. Each monthly mortgage payment will include 1/12 of the total annual insurance cost and the mortgage lender will ensure that payment is made each month.

Private Mortgage Insurance – Buying a home with a smaller downpayment creates a greater risk for the lender. To compensate for that risk, the lender will require that you pay Private Mortgage Insurance. This will increase your monthly mortgage payment.

Do Mortgage Rates affect when you buy a home?

The factors that people use to determine when they are ready to buy a home are probably as varied as people themselves. But there are two factors that are prominant in making this decision:

  • Family situation – new baby, new marriage, new job, retirement
  • Financial situation – savings for downpayment, paid off student loans, inheritance

I’d like to suggest that potential buyers consider a third factor – mortgage rates. While there is no magic crystal ball, economists can use historical data and economic data to predict how mortgage rates will change.

Most economists predict that mortgage rates will be about one point higher in 2016 than they are in 2015. How does that affect your buying power?

Waiting to buy your home until 2016 will cost about $59 more per month or $21,260 more over the lifetime of the loan compared to buying a home today.

So what are you waiting for?

mortgageratesjuly2015

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