Breaking Down the Elements of the Mortgage Payment
A mortgage payment is probably one of the biggest investments you will make throughout the course of your lifetime. Mortgages are referred to in a number of different loans, but are most commonly known as home loans. A mortgage may seem complicated, but it is actually a simple agreement between a bank and a borrower for a monetary loan in exchange for a piece of property. The loan that you have to pay off for your home is your mortgage payment.
More times than not, a person or couple who is looking to purchase a home does not have the capital upfront. This is why they would take out a mortgage, which allows them to pay it off over a long period of time. Before you can apply for a home loan, it is important to get a mortgage pre-approval to make sure you are able to afford one. The basic calculation of any mortgage payment is principal + interest + real estate taxes + private mortgage insurance.
Components of Your Monthly Mortgage Payment
After the closing process on your house, you will receive the most important part of a mortgage payment, which is called the principal. This is the actual amount of money that you have borrowed from the lender. The principal balance adjusts every time you make a payment. When a payment is made, your balance decreases,and your home equity increases. Your starting principal balance is composed of the purchase price, combined with the fees rolled into mortgage, minus the down payment you made.
Monthly mortgage payments also include interest. Interest accumulates throughout the loan period. No matter if it is a fixed rate or adjustable rate, interest is accrued annually. To calculate how much interest goes into your payments, take the annual percentage rate and divide it by twelve. Then take that number and multiply it by your principal balance. The more you pay off your mortgage, the more your interest will shrink down to nearly nothing. Keep in mind that you can refinance your mortgage at any time you feel necessary.
Taxes are the third component of your monthly mortgage payment. This variable of the payment fluctuates on two factors: the assessed value of your home and the mill rate in your local jurisdiction. Both factors constantly change over time, so it is important you stay up to date. You can do this by checking the assessed value of your home frequently and checking up on your local tax policy.
Homeowners who have not paid off their mortgage are required to have homeowner’s insurance coverage. Depending on the area you live in, the price of insurance can vary. For those in disaster-prone areas or high crime areas it will be more expensive. Additionally, if you are a subprime borrower, you must also carry supplemental mortgage insurance due to the risk of default. Private mortgage insurance (PMI) is necessary until you have paid enough principal to own 20% of equity in your home.
Finding the Right Mortgage Broker
In the greater New York metro area, no one has a better track record of mortgage financing than Guard Hill Financial Corp.. We are leaders in the New York City mortgage financing industry since 1992. With our specialized programs and network of over 50 lenders, we can tailor any of our products to best fit your personal situation. Be sure to contact us today to learn more about we can help you in becoming a homeowner.