Today I wanted to break down what really goes into your monthly mortgage payment.
There are a few different things involved in a monthly mortgage payment. I often am approached by people who tell me things like that they’ve seen a billboard advertising a $300,000 listing with payments of only $1,200 a month.
However, this isn’t something you want to get caught up in. This is a trap.
The first part of your payment is the principal and interest. To calculate these, take the loan amount times the loan term times your interest rate. This number is only what you pay the bank, and is not the full number. So, when you see that a payment is a number that seems too low to be true, they aren’t talking about the full payment.
The full payment is referred to in the industry as PITI—principal, interest, taxes, and insurance. Principal and interest will be reduced each month as you continue to pay the bank. But of course, there are other factors to remember.
THE FULL PAYMENT INCLUDES PRINCIPAL, INTEREST, TAXES, AND INSURANCE.
People tend to forget taxes and insurance. A general rule of thumb in our Houston area is that taxes run about 2.5% of the sales price of a home. Insurance, in most cases, runs about 1% to 1.1% of the area.
Your payment, without these, will be completely wrong.
Unless you’re putting down 20% on your mortgage loan, you will need mortgage insurance. This insurance varies from loan to loan. Unless you have a VA loan, you will have to have it.
Mortgage insurance is different from homeowners insurance, however. It protects against foreclosure. Imagine you’re living in the house for a while but then suddenly lose your job. Imagine also, that within that time you’ve done damage to the house causing a decrease in its value.
Ultimately, if this is the case, the bank is protected by your mortgage insurance.They will go to the insurance company and file a claim to get a portion of their losses.
If you have any other questions or would like more information, feel free to give me a call or send me an email. I look forward to hearing from you soon.