Monthly Mortgage Payment 101
Can I lower my monthly payment?
This is where a mortgage calculator can add more insight to the process of purchasing a home: by allowing you to focus on different payment scenarios.
This is how you can reduce your monthly payment:
- Extend the number of years for the loan: This means that the monthly fee will be smaller, but over the years you’re going to pay a lot more interest. Check your amortization plan to see the effect of your loan extension.
- Buy less house. Clearly, taking out a smaller loan will mean paying a lower monthly mortgage.
- Avoid the payment of PMI. You will not have to pay private mortgage insurance by putting down 20 percent or more. This may be another option to consider in the mortgage calculator tool as you run “what ifs.” If you look at FHA loans, however, mortgage insurance can last for nearly the entire length of the loan.
- Obtain a better rate of interest. Not only can putting down more money eliminate PMI, but it can also lower your interest rate. This means a lower monthly payment for mortgages. Shopping at least three lenders can also increase your chances of higher interest rates on mortgages.
What are the monthly costs associated with a monthly mortgage payment?
If only the principal and interest were included in your mortgage payment, you could use a bare-bones mortgage calculator. But these days, this is rarely the case. There are many costs that can be incorporated into a monthly mortgage payment. When evaluating mortgage payments, here are the five key components in play:
- Principal Usually: this would be the purchase price of the house, less any down payment. When you buy a home worth $500,000 and put down $100,000, the balance is $400,000.
- Interest: What you are charged by the lender to loan the money. Interest rates are expressed as a percentage of the year.
- Property taxes: the annual tax allocated to your home and property by a government authority.
- Mortgage insurance: If your down payment is less than 20 percent of the home’s purchase price, mortgage insurance is likely to be paid. In case a borrower defaults on a loan, this covers the interest of the lender. If the property’s value falls to 20 percent, mortgage insurance is cancelled, unless you have a loan from the FHA.
- Homeowners Association (HOA) fee: Homeowners pay this fee to an organization that helps with maintenance, property improvements and shared amenities.