Elements Comprising a Monthly Mortgage Payment

For prospective or upcoming homeowners, one of the most important long-term elements typically considered is the monthly mortgage payment. Knowing exactly how much you'll be paying each month moving forward is vital for any mortgage loan and home you're considering, and for many buyers, this also includes understanding the different elements that comprise the monthly payment.

At Integrity First Lending, we know monthly payment amounts are vital to many of our clients -- that's why, in addition to our fantastic mortgage rates and several different quality mortgage programs, we also offer a handy mortgage calculator that allows you to make some very simple inputs and get a detailed idea of what your payments project to be. What are the important elements that need to be considered when calculating your monthly payments, whether using such a calculator or any other method? Here's a rundown.

Mortgage Payments

The simplest and typically largest component of your monthly mortgage payment will be the actual mortgage itself. Your payments here will go toward two areas:

• Principal balance: This is the original amount of the mortgage loan being repaid.
• Interest: This is the percentage of the mortgage payment that goes toward interest on the loan. Over time, as you make more payments, the percentage of your monthly payment that goes to interest will decrease while the percentage going to principle balance increases.

Your specific mortgage payment will be based on several factors, including the mortgage amount, interest rate, and term (length of the loan).

Property Taxes

In addition to your mortgage payment, you'll also likely need to budget for annual property taxes. The amount you'll owe will be based on the assessed value of the home and the tax rates in your municipality. Your real estate agent or lender can give you an idea of what to expect.

While property taxes are not insignificant, they tend to come in at much lower amounts than your mortgage payment or monthly interest. Because they're paid annually instead of monthly, though, it pays to prepare for this expenditure by budgeting for it in advance.

Homeowner's Insurance

It's also important to remember that, as a homeowner, you'll need to budget for insurance premiums. Your coverage will protect your home and its contents in the event of damage, theft, or other unexpected occurrences, and the cost of premiums will vary depending on factors like the value of your home, your age, and where you live.

Again, while insurance costs shouldn't be underestimated, they typically pale in comparison to other monthly payments involved in a mortgage.

Utility Costs

There are also a few home-specific expenses you'll have to budget for on a monthly basis, even after your mortgage is paid off. These can include:

• Heating and cooling: Depending on the time of year and your climate, you can expect to pay between $100 and $300 per month for heating and cooling costs.
• Electricity: The average household spends between $50 and $125 per month on electricity.
• Water: In urban areas, you can expect to pay around $50 per month for water and wastewater services.

Utility costs can vary widely depending on the size and age of your home, as well as your climate and location. Be sure to ask your real estate agent or lender about average monthly costs for the specific property you're considering.

HOA or Condo Association Fees

One monthly cost that will only apply to some buyers, but is very important among those who have to pay it, is homeowners association (HOA) fees or condo association fees. If you're buying a condo or townhome, for example, you'll likely have to pay monthly fees to the condo association in order to cover things like common area maintenance, insurance, and trash removal. Some neighborhoods or home communities will have similar groups in the form of an HOA.

These fees can range from $50 per month to well over $100, so be sure to factor them into your monthly budgeting if they apply to you. How much they involve generally depends on a few things, such as the size of the community and the amenities it offers.

Private Mortgage Insurance

Another cost that's not present in every case, but is something to be aware of, is private mortgage insurance (PMI). If your down payment on a home is less than 20%, your lender will likely require you to carry PMI. This insurance protects the lender in case you stop making payments and the property is foreclosed on.

The cost of PMI varies, but typically ranges from 0.3% to 1.5% of the loan amount per year. So, if you have a $200,000 mortgage, you can expect to pay between $600 and $3,000 annually for PMI.

Luckily, most mortgage programs (with the exception of the FHA program) allow for cancellation of PMI once the loan-to-value ratio reaches 80%. This means that, over time, you will likely no longer have to pay for PMI once your equity in the property grows.

Other Living Costs

While these won't technically be part of your mortgage payment itself, many people prefer to consider all such expenses together when budgeting for a new home. These can include things like groceries, transportation costs, and entertainment. They may also feature school or daycare expenses if you have children.

When budgeting for a mortgage, it's important to remember that there are a variety of costs involved beyond the monthly payment itself. These can include annual homeowners insurance premiums, utility costs, and HOA or condo association fees. Be sure to ask your real estate agent or lender about average monthly costs for your upcoming mortgage, and to use our handy mortgage calculator to do some basic math for yourself.

For more on this, or to learn about any of our mortgage rates or home loan services, speak to the team at Integrity First Lending today.