Purchasing a home is fun, exciting, and thrilling. It can be a real treat to check out different homes in your area until you finally find the one that best fits your lifestyle and needs. Now, figuring out all of the details surrounding the mortgage payments – not so much fun. Especially if you are not a numbers person, your mortgage can seem overwhelming and completely foreign.
As much as you may like to avoid it, mortgage payments are a necessary evil that you must address when buying a home. To help you navigate through this area, we have put together a few pieces of information to help you make sense of mortgage payments.
What is a mortgage payment?
Essentially, a mortgage payment is a long-term loan that will enable you to purchase a home. The vast majority of homebuyers will end up with a 30-year fixed rate mortgage, since this will allow you to have reasonable monthly payments without paying an excessive amount of interest over the years. However, other terms are available. If you have the financial means, you can get the house paid off quicker and with less interest by getting a 15- or 10-year fixed rate mortgage.
What is included in a mortgage payment?
A mortgage payment is comprised of several different fees. Part of each payment will go towards the principal, which is the actual amount of the loan you took out. The interest on your loan will also be included in the payment, as well as real estate taxes. If you don’t put down 20% when you purchase a house, private mortgage insurance (PMI) will be added to your payment amount. The good thing is that PMI can be dropped once you have 20% equity in the home. Lastly, your property insurance may also be included in the mortgage payment.
The most important thing to remember about your mortgage is that the more money you are able to put towards the principal each month, the less interest you will pay to the lender over time. For instance, even if you have a 30-year loan, you could make the payments of a 15-year loan to drastically reduce the amount of interest you will pay. Essentially, if you have a little extra, go ahead and put it toward your principal.