How Your Monthly Mortgage Payment Gets Calculated

calculate monthly mortgage payments

Do you know what your monthly mortgage payment is paying for beyond the mortgage calculator calculations?

Anyone can take the property value and enter it into a mortgage calculator to determine the monthly mortgage payment. While a mortgage calculator is great for calculating your monthly payments, there are a lot more factors that get calculated into the price the calculator misses which results in higher payments.This can be confusing to anyone, but once you know where each dollar goes towards, you will have a better knowledge of your payments.

  1. Principal – This would go towards the total home purchase price minus the down payment. For example, if you are purchasing a $500,000 house and you put $20,000 down, then your principal would be $480,000.
  2. Interest – This is the fee the lender charges you to loan the money towards your purchase. Your interest rate gets calculated by what the current market is at the moment and your credit score. The higher your score is, the lower your interest rate will be. This fee is steady unless you obtain an adjustable-rate mortgage, which will cause your interest rate to go up or down in due time.
  3. Property Taxes – This is the yearly amount that is assessed by the government based on your home and property. Your property tax gets put towards municipalities like schools and organized recreation areas like parks. Property taxes tend to rise over time, so expect your monthly payments to go up as well.
  4. Homeowner’s Insurance –Homeowner’s insurance is made to cover any losses and damages that occurred towards your house and their assets, as well as liability coverage towards any accidents made in the home or on the property. This amount will stay the same as long if your premiums stay the same.
  5. Private Mortgage Insurance – There are many programs available today that does not require putting a 20% down payment to purchase. However, if you decide to put less down, you might be required to pay mortgage insurance. Mortgage insurance, or PMI, protects the lenders if a borrower defaults on their mortgage. Depending on the type of loan you’ve obtained, once the equity of your property is 20% of the overall value, your mortgage insurance could be removed. To inquire more about this, ask your loan officer to direct you to the right program.
  6. Homeowner’s Association – Also known as HOA, this fee goes towards the organization that assists with the common upkeep and improvements on shared amenities and spaces. Those fees are typical for anyone who purchases a condominium, townhouse, or in a planned development section.

While the mortgage calculator is a wonderful resource calculating your monthly payments, keep in mind that more factors go towards the price besides what is represented by the calculator. Hopefully, this breakdown shows you where your money goes to each month and put your mind at ease. Did anyone of them surprise you? Let us know or if you have a question about any of the items listed.

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