A mortgage payment is composed of the principal, interest, property taxes, and insurance. The principal is the amount borrowed to purchase the home, while the interest is the percentage the lender charges to borrow the money. Property taxes are set by the local government, and insurance encompasses both homeowner’s insurance and private mortgage insurance (PMI) — the latter of which is required if you put less than 20% down.
Understanding your mortgage payment doesn’t have to be complicated. There are many ways that buyers can learn more about the mortgage process to become informed borrowers.
1. Speak to a Lender
The best way to understand your mortgage payment is to speak with a lender. Their expertise in the field can help you navigate your options, including available loan programs, ways to improve your credit, and down payment assistance.
2. Use a Mortgage Payment Calculator
A mortgage payment calculator is an essential tool for borrowers interested in learning more about the specifics of their potential home loans. Beyond clearly stating how much your loan will cost annually, monthly, and in total, a mortgage calculator can be used by buyers to choose the best loan terms.
Plugging in various values for the different items demonstrates how much mortgage terms impact the long-term affordability of a loan. Buyers can reference their online calculator when deciding between prospective mortgage offerings, as well as when they are shopping for a lender.
Look for a mortgage payment calculator that has many options. The full scope of your loan’s underwriting, including your location, your credit score, the principal amount, your down payment, the property value, interest, PMI, taxes, and different lenders.
Working with mortgage calculators that omit any of this crucial information will not provide you with a full and accurate picture of your loan.
3. Get Familiar with Mortgage Vocabulary
Familiarizing yourself with mortgage-related vocabulary will help buyers prepare for meetings with lenders and real estate agents. Learning more about the terms associated with your loan will also help you understand their impact on your mortgage, and ways to best approach them. Here’s a quick list to get you started:
APR — The annual percentage rate is the total cost of borrowing money, including the interest rate, any points, mortgage broker fees, and any other charges you may incur.
Refinance — Loan refinancing is when you take out a new loan to pay off one or more outstanding loans. Someone may refinance their home mortgage, for example, to get a lower rate or reduce the term of their loan.
Escrow — An escrow account is a special holding account for your property tax and homeowners insurance payments. Your lender collects these payments out of your monthly mortgage, holds them in the account, and then pays the bills on your behalf.
Term — The loan term is the length of time it will take you to completely pay off the loan when making regular payments.
Title Insurance — Title insurance protects lenders and homebuyers from any financial loss that may arise from issues with a title to a property.
Earnest Money Deposit — This is a deposit made to a seller that represents a buyer’s interest and ability to buy their home. In most cases, the earnest money is given when a sales offer is signed.
Defining this handful of mortgage terminology will provide you with a solid foundation for applying for your loan.
Continue empowering yourself as a buyer by researching the mortgage process. Dedicating time to get more clarity about your mortgage loan will help you maximize your investment through informed decision making.
4. Utilize Online Resources
For more helpful information about home loans and mortgage payments, you can use our mortgage resource center where you can estimate your affordability, calculate payments, explore today’s mortgage rates, and get preapproved by a lender.
