Calculating Out Your Mortgage Payments: What’s In A Mortgage?

Calculating Out Your Mortgage Payments: What’s In A Mortgage?

Your mortgage payments include more than simply your principle and interest. When you’re trying to decide whether a mortgage payment will be affordable, you’ll want to consider everything included.

Principle and Interest

Mortgages in America are front-loaded, which means you pay more interest and less principle at the start of the loan and more principle and less interest towards the end of the loan. For many homeowners, this is actually beneficial because the interest of the loan is usually tax-deductible, leading to savings every year (Consult with your tax professional).

Property Tax

Property tax is sometimes included in your mortgage payments. The lender has a vested interest in making sure that property tax payments are made on schedule because back taxes owed to the state or county could affect the property’s future sale.

Private Mortgage Insurance

Often, if you purchase a home with less than 20 percent down you’ll have a private mortgage insurance fee included in your mortgage until you have reached a 20 percent equity position (through a combination of property appreciation and principle reduction).

Some mortgage lenders will bundle mortgage insurance into the cost of their loan. This is to protect their interest in the property; if mortgage insurance is not paid, the bank may not be able to recover their costs in the event of a foreclosure. You’ll want to talk to your mortgage lender about whether mortgage insurance is included in your mortgage payments and, if so, how much it costs.

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