Contents of a Monthly Mortgage Payment
Few of us can afford to purchase a house with our meagre savings; but most of us can afford to take out a mortgage loan to purchase our dream homes. If you purchase a home on mortgage funds, you are required to pay off the loan through monthly payments over a certain period of time. If you fail to make your monthly payments, you stand the risk of losing your home.
Contents of a Monthly Mortgage Payment
Your monthly mortgage payment includes:
• An amount to pay off the principal
• An amount to pay off the interest incurred on the loan
• An amount to pay off insurance premiums, property tax, mortgage insurance, and any other fees
The last-mentioned amount depends on the type of mortgage loan taken and is independent of the rate of interest paid on the principal. Your monthly mortgage payment, therefore, includes principal, taxes, interest, and insurance.
Escrow Account
As a homeowner, you need to pay your property tax, and if you find it difficult to do this, you can make certain arrangements with your mortgage lender and pay a certain amount into an escrow account. Your mortgage lender will maintain this account for your, ensuring that there is enough money in it to pay off your mortgage insurance premiums and property tax.
You will receive a statement from your mortgage lender periodically, letting you know how much you have in your escrow account. You can then check your escrow account statement against your insurance bills and tax bills to ensure that your mortgage lender is paying off these essential bills in a timely manner.
Here are some insurance products associated with a mortgage loan:
Force Placed Insurance
You are required to insure your house building; and if you cannot afford it, your mortgage lender will purchase an insurance product for you. As far as possible, you must avoid force placed insurance because they are very expensive; and needless to say, they mean higher monthly mortgage bills too.
Private Insurance
Mortgage lenders usually make it mandatory for borrowers to take out private mortgage insurance if they cannot raise at least 20 percent of the market value of the house as deposit. This insurance product protects the mortgage lender in case the borrower is unable to pay off the mortgage loan and in case the lender is unable to recover the mortgage costs even after selling the house.
Calculating Mortgage Payments
Before agreeing to get into a mortgage deal, you must ensure that you can really afford to make the monthly payments. Your monthly mortgage payment includes not just principal and interest, but also your monthly property tax, property insurance premium, private mortgage insurance premium, and any other expenses associated with the mortgage product you are interested in.
The best way to find out the exact amount you will have to pay as monthly mortgage payment is to discuss the matter with your mortgage advisor or broker. Alternatively, you can also use one of the numerous mortgage calculators available online.