If you’re purchasing a home for the first time, you may be surprised to see all of the things that go into your monthly mortgage payment. Depending on your loan, you could have a half dozen different expenses rolled into it! Here are the most common elements:
Principal. This is the total amount you are financing. The longer your mortgage term, the lower the monthly payment. For example, you’ll pay a significantly higher monthly payment on a 15-year mortgage compared with a 40-year home loan. (But you’ll have your home paid off 25 years earlier.)
Interest. This is the amount you’re being charged to borrow the money to purchase your home. The lower your mortgage rate, of course, the lower your monthly payment.
Taxes. This money goes to the government. Expect to see your property taxes rolled into your regular mortgage payment.
Homeowner’s Insurance. This is what you pay to insure your home against theft, fire or other misfortunes.
Private Mortgage Insurance (PMI) If you are putting less than 20 percent down on your home, you’ll probably have to pay extra for this service: Private mortgage insurance.
Earthquake/Flood Insurance. These two types of insurance coverages are not included in standard homeowner’s insurance policies. You can elect to have either or both types of insurance rolled into your monthly mortgage payment. You can also pay for that coverage in one lump sum annually.
Homeowner’s Association Fees. If you have a condominium or homeowner’s association, you could find fees rolled into your mortgage payment.
Phew! That’s a lot to put into one bill. So if you’ve found the house of your dreams, here’s a nifty calculator to help determine your monthly payment