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Understanding How To Calculate Your Monthly Mortgage Payment
Mortgage Payments are based on a number of factors, including the loan term, down payment, loan program, credit scores, interest rates and other lender specific guidelines.
Your mortgage payment is generally due at the beginning of the month, and most lenders start assessing late fees on the 15th. It is extremely important to remain under 30 days late on a mortgage payment, especially within the first 8-12 months of closing on a new loan.
When you receive your first mortgage bill, there will be a few numbers that add up to your total payment:
This is the portion that goes towards paying down your balance. An Amortization Schedule will break down the exact amount of each payment that is being applied to the principal and interest.
The interest payment is essentially the amount you’re paying the bank over time to borrow the principal balance.
Depending on which loan program, interest rate and closing cost scenario you chose, the amount of interest due every month may vary.
Property Taxes –
Real Estate Taxes can either be included (Impounded) in your monthly payment (PITI), or paid by the homeowner separately.
Certain government loan programs or high Loan-to-Value (LTV) mortgages require that taxes and insurance be included with the total mortgage payment.
Either way, it’s important to make sure you ask your loan officer and/or closing agent during the final loan docs signing to clearly explain what’s included in your monthly mortgage payment.
Hazard Insurance –
This is your hazard insurance (Fire), which protects your home and belongings.
While there are many ways to save money on your property insurance, it’s important to know and trust your insurance agent so that you can be fully aware of what’s covered in your policy.
Some homeowners shopping strictly on price may unknowingly leave valuable personal items without protection just to save an extra $15-$19 a month.
Mortgage Insurance –
This can come in a few different forms, depending on whether you have an FHA loan, VA, Conventional, Jumbo…
Mortgage insurance is in addition to hazard insurance, and completely unrelated. A lender will require a borrower to pay mortgage insurance on a property with a Loan-to-Value (LTV) greater than 80% for conventional or based on a sliding LTV scale for other types of government insured loan programs. The main purpose of mortgage insurance is to protect from foreclosure losses if the borrower fails to meet the monthly payment obligations.