What does a Monthly Mortgage Payment include?

 

Congrats! You might be contemplating a home purchase or construction, but avoid getting lost in fantasy. Are you thinking about mortgage rates and getting worried about the monthly mortgage payment? Consider the budget and ask if monthly payments will become a hassle later on.

Choose from several types of mortgage loans. Do you know which will be best? A 15-year fixed-rate conventional loan brings the lowest total cost. Decide if you can afford that if it is within 25% of your monthly take-home salary?

What does the monthly mortgage payment consist of?

Have you heard of PITI? The acronym stands for Principal, Interest, Property Tax, and Homeowner’s Insurance. A mortgage calculator simplifies it all. Let us take it one at a time.

Principal Loan Amount

Perhaps you were attracted by the Washington mortgage rates, according to the place of residence. The principal represents the amount of loan borrowed from a lender to build or buy a house. Imagine a home has been purchased for $200,000. But 20% or $40,000 was a down payment of your own money—the Principal amounts to $160,000. 

Interest paid on the principal.

Lenders run a business like any other that is fueled by profit motives! Interest is decided as a percentage of the principal amount that remains to be repaid.   

Fixed interest rate mortgages

Mortgage rates change like the weather. Choose a mortgage with a fixed interest rate. Avoid the adjustable-rate mortgage that brings surprise payment changes each year. 

In that example, let us imagine that you decided to pay back $160,000 with a 4% interest within a 15-year term. The first monthly interest payment would be a hefty $533.

Mortgage calculator again

The math is not so complex because the calculator simplified it. The total interest in our example works out to $53,000. Including your down payment of $40,000, you will pay a total of $253,000 to complete the costs of the letter. Monthly mortgage payments work out to $1,184 each month.

Monthly principal plus interest payment

            Monthly interest

            Monthly principal

 

             $1,184

            $533

            $651

 

 

The following month requires the same $1,184 payment, but interest has reduced to $531, and the principal has increased to $653. The process continues till the end. 

Tax Payments

The local government collects property tax on the house. Even cash payments will invite property tax that pays for public services. Usually paid annually, can deliver property taxes along with the monthly payments. Lenders will put it in escrow accounts.

Calculation of Property taxes

Rates consider the assessed property value and not the market value. The price you agreed to pay is the market value. An assessor decides the house value and informs the local government after an examination.

Homeowner’s Insurance

Reaching the end of PITI, Boston mortgage rates, a home buyer requires insurance to guard against emergencies. You would also pay an Insurance premium into the escrow account every month.

Private Mortgage Insurance (PMI) and Homeowners Association (HOA) Fees complete the monthly payment package.