How is my monthly payment determined?

It’s called a monthly mortgage payment, but it includes more than payment on the loan itself. Yes, it will include a portion to help pay off the principal loan amount, but that’s just for starters. It will also include interest and will likely include property taxes and homeowner’s insurance, as well. It may also include private mortgage insurance (PMI).

Your monthly payment is based on these six things:

  1. The initial loan amount
    This is called the principal amount of your loan. It’s the purchase price less the down payment. So, if you bought a house for $300,000 and your down payment was $15,000, then your principal is $285,000. That’s the amount you are borrowing.
  2. Your annual interest rate
    Your interest rate is the percentage of your principal that you are charged each year. For example, if your interest rate is 5%, then you’re paying 5% of your principal each year.
  3. The life of your loan
    Knowing how many years your loan runs tells you how many monthly payments will be made. Most loans are for 15 years or 30 years. Simply multiply the years by 12 months, and you’ll know how many monthly payments you can expect to make over the full life of the loan. For example, a 15-year mortgage equals 180 monthly payments.
  4. The annual property taxes on your home.
    Most homebuyers choose to let the lender manage and pay their property taxes. If you choose this, your monthly payment will include an amount set aside to pay your property taxes. This money is actually saved by the lender in an escrow account for you and the lender pays the taxes when they  are due. You don’t have to keep up with it. At the end of the year, you may have to pay a bit extra or be given a refund for any escrow dollars left over. Please note that many loans require handling taxes through an escrow account and do not give the homebuyer the option of paying them directly.
  5. The cost of homeowner’s insuranceAlmost every first-time homebuyer will be required to take homeowner’s insurance to cover the cost of repairing damages from storms, water leaks and much more. You will have different policies to choose from. Generally, the lower the deductible, the higher the monthly premium. Whatever you choose, your lender will factor it into your monthly payment. Like taxes, the money is saved in your escrow account and paid to the insurance company as it is due. Some loans give you the option of paying the insurance directly, in which case these costs are not included in your monthly payment.
  6. The annual premium for private mortgage insurance (PMI)
    It is not unusual to be required to carry PMI if you made a down payment of less than 20%. As with homeowner’s insurance, your PMI costs are added to your monthly payment and placed in escrow. Once you have paid off 20% of your principal loan amount, you may no longer be required to carry PMI. 

Let Caliber crunch the numbers.

For the best estimate of what your monthly mortgage payment will be, give me a call today! I can make sure you’ve got the right numbers and factor in all the details along with advising you if you may be exempt from some costs. I do this every day so please use my expertise. I will make sure you have the best answer possible.

Contact me with any questions, concerns or ideas. No Question is to small!

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