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What Goes Into Your Monthly Mortgage Payment

Your mortgage payment will be one of the biggest pieces of your monthly budget.  Whether you’re purchasing or refinancing, there are 6 different factors to consider that will affect the total amount leaving your bank account each month.  Let’s break it down:

  1. Principal – The principal is the amount of money going directly toward your loan balance.

  2. Interest – The lender charges an interest rate on the amount of money owed on the loan.  A fixed-rate mortgage means your interest rate will not change.

The principal and interest together compose the main part of your monthly payment.  As your loan balance decreases, you end up paying more principal and less interest; at the beginning of the mortgage, you’ll be paying more interest and less principal.  The total “P and I” amount remains the same.

  1. Taxes – Property taxes are paid to the county.

  2. Homeowner’s Insurance – Homeowner’s insurance protects your home in the case of damage or theft.  You will choose your own homeowner’s insurance provider, although we can provide some recommendations.

Most of the time, the taxes and insurance are included in your monthly mortgage payment–so what leaves your bank account each month includes each of those first 4 components.  The taxes and insurance are stored in an escrow account and then paid on your behalf whenever the payments are due.  If you have more than 20% equity in your home, you can opt to remove these from your payment and you would be responsible for paying these on your own.

  1. Private Mortgage Insurance – If the amount of the loan is more than 80% of the home’s value, you will also have private mortgage insurance (PMI) each month.  For example, on a home worth $200,000, you would have mortgage insurance if your mortgage balance is greater than $160,000.  PMI protects the lender if for whatever reason you are unable to make payments on the home.  For a conventional mortgage, the PMI will automatically fall off once your loan balance hits 78% of the value.  You can request that it be removed at 80%, but the lender might want an appraisal to confirm the home’s value.  For an FHA mortgage, the PMI remains in the monthly payment for the life of the loan.

  2. Homeowner’s Association Dues – Some homes belong to homeowner’s associations.  The amounts vary greatly depending on how much the association provides for the community.  Some single-family detached homes have quarterly association dues.  Attached townhomes and condos most likely have monthly dues.  We do include the homeowner’s association dues in your monthly payment (meaning you have to qualify with the dues included), however it is not paid with the rest of your mortgage.  You would pay these dues directly to the association.

Can your mortgage payment ever change?  Yes, it can.  On a fixed-rate mortgage, your “principal and interest” portion will never change over the life of the loan.  However, even with a fixed rate, your taxes and insurance could change each year.  You’ll get a notice in the mail with your monthly mortgage statement breaking down what your new monthly payment will be, when/if this happens.

Several websites have free, simple mortgage payment calculators that can give you a good approximation:  However, be aware that these might not be accurate and you should get an official fee sheet from a lender if you want to be certain.

With all the factors that go into a mortgage payment, it’s important to think about what you’re comfortable with as an “all-in” number.  How much are you able to dedicate to your mortgage every month?  Give us a call if you want to talk with us about what monthly payment scenario might work best for you.  We can work backwards to help you figure out what purchase price you should be looking at for your budget!


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