What’s Included in my Mortgage Payment?
Published: May 2020
Author: Bank of England Mortgage Staff
So you’re getting ready to make one of the biggest financial investments of your life and buy a house. Congratulations! Before you really invest in the decor and dive into your ‘Home’ Pinterest boards, there’s something you want to consider: Is your budget ready to handle a monthly mortgage payment?
If you’re not buying with cash, this is an important question to ask. Knowing what’s included in a monthly mortgage payment and how much home you can actually afford are key steps to finding a home that will fit your long-term goals.
Principle & Interest
The first part of your mortgage payment is the principle. This is the money used to pay down the balance of the loan.
Interest is the charge paid to the lender for borrowing the money. It is a percentage of the principal - the amount of the loan you have left to pay.
These are the two main components of your mortgage payment.
The property taxes you pay as a homeowner are based off of the value of the property. The local governing body will use the assessed taxes to fund water and sewer improvements, and provide law enforcement, fire protection, education, road and highway construction, libraries, and other services that benefit the community.
Homeowners insurance protects you against home damages or theft. Rather than risk having to pay to repair or rebuild your home (your biggest investment!) after a fire or tornado, homeowner’s insurance takes the risk off your shoulders and gives it to your insurance company.
Private Mortgage Insurance (PMI)
Buying a home usually has a monster obstacle: coming up with a sufficient down payment. How much you put down on a conventional mortgage — one that’s not federally guaranteed — will determine whether you’ll have to buy PMI, or private mortgage insurance. You pay a monthly premium to the insurer, and the coverage will pay a portion of the balance due to the mortgage lender in the event you default on the home loan.
Homeowners Association (HOA) Fees
An HOA fee goes to maintaining the property and shared facilities or services that are part of certain private residential communities like condos, townhouses or gated communities. If you belong to a community like one of these, don’t overlook your HOA fee. These could add anywhere from $50–$350 to the amount you pay each month for your overall housing costs.
If you’re buying a house and need help finding a great home in your price range, be sure you’re working with a top-notch real estate professional who can help you find the house of your dreams. At Bank of England Mortgage, we understand you're making a commitment when buying a new home. You can be certain that we'll do our utmost to answer all of your questions quickly, so you can be confident that you have the best loan to fit your financial goals. Our mortgage professionals stand by ready to give you the personal attention you deserve and treat you with the respect due a valued customer.
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What’s Included in a Monthly Mortgage Payment - Dave Ramsey
Property Tax - Investopedia
PMI: Private Mortgage Insurance, Explained - NerdWallet