Monthly Mortgage Payments: What do you pay each month?

April 20, 2017

The monthly payment on your home can be broken down into several pieces.  Along with paying back the mortgage debt you may have additional monthly costs depending on your loan type or how much you put down when purchasing the home.  Your monthly payment may look like this:

  • Principal and Interest

    • This is the portion of the monthly payment that actually pays back the loan on the house.  This payment is determined by how much you put down, the interest rate on the loan, and the term the debt is amortized over.  For example, $100k purchase with 5% down ($5k), is a $95k loan amount. With an interest rate of 4% on a 30yr term, the monthly payment is $453.54. On a 15yr term with a rate of 3.25% the monthly payment is $667.54, which is much higher.  As you continue to make payments, the portion each month that goes toward principal will increase while the portion paid to interest goes down. See the below graphic . 

  • Escrows

    • Homeowners Insurance

      • Just like having insurance on your car, you need to have homeowners insurance on your house.  This protects you and the banks collateral should anything catastrophic happen.  The bank collects this monthly to make sure it gets paid out correctly when it comes due each year.

    • Property Taxes

      • The county in which you live will likely collect property taxes bi annually.  The bank will collect the monthly breakdown of the annual bill in your escrow account.  It works in the same way as the homeowners insurance in that it’s collected so that it gets paid out on time.

    • Private Mortgage Insurance (PMI)

      • Depending on the type of loan you have on your home will determine if you have monthly mortgage insurance.  This is common on loans where the home buyer did not put 20% down.  The monthly premiums can be different for different loan types.  For example, a conventional loan may have lower monthly premiums than an FHA loan depending on your credit score.  PMI can be dropped from the monthly payment as soon as the homeowner reaches a 20% equity position in the home. (e.g. $80k loan amount on a $100k value)

Knowing what your monthly paymen

 

t goes to each month is important.  Don’t you want know where your money is going and why? When you get your car fixed you want to know the breakdown of that payment, right? The same thing applies to your monthly mortgage payment, you need to know and understand where your money is going and why.

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 zach.williams@yourstatebank.com

State Bank

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