Most homeowners know what they are paying every month but very few know exactly where there money is going. If you don’t know how your mortgage payment is broken down you may be missing out on opportunities to save money. Your mortgage payment is one of those things that every homeowner should be able to quickly recite. Not only should you know your bottom line but you should know which numbers are constant and which could change from year to year. Your mortgage is most likely the biggest expense you have and you need to know exactly where your money is going.
Principal and interest. In the past if you wanted to know what your mortgage payment would be you would have to get in touch with someone who knew how to work a financial calculator. Today there are plenty of online mortgage calculators that can quickly give you this number. Your principal and interest is the biggest expense in your mortgage payment. This takes into account your loan amount and the interest rate you are paying on that number. The most popular loans are for either 15 or 30 years, meaning this number will not change during that time. You can pay down your principal, or the outstanding balance, but your monthly payment will always be based on your original loan amount.
Taxes. If you own a home you need to pay taxes on it. This is the case whether you have an outstanding balance or not. Your property taxes can change based on your town annually. It is uncommon, but not impossible, for your taxes to increase a thousand dollars in a year if there are increased foreclosures or short sales or the town is running at a deficit. In most cases any changes will be incremental at best but keep an eye out for your tax bill when it comes out.
Insurance. Your homeowners insurance works much the same as your taxes in that it is an annual payment that is broken up into smaller monthly payments. This number could change from year to year if the conditions of the property change or other factors affect the value. The number of units in the property will also have an impact as well as the type of property. Condominiums typically have their homeowners insurance covered as part of the mast insurance policy.
Private Mortgage Insurance (PMI). If you purchase your home with less than 20% down payment you will need to pay PMI. This payment goes to your lender to insure the property against possible foreclosure. This payment is enforced until you make 60 consecutive payments or if your property gains over 20% equity. If you think your value increased contact your lender and see which steps you need to take to eliminate this.
Between the principal, interest, taxes, pmi and insurance there is a lot that goes into a monthly mortgage payment. It is important to know how much each of these items are so you can get an idea of whether or not a property is within your price range. Once you take ownership stay on top of your payment to see if a refinance makes sense or if you can eliminate the PMI. Small changes in either of these areas can make a huge difference in your monthly payment.