- Calculate your mortgage payments here
- PITI (Principal, Interest, Taxes, and Insurance) make up your monthly payments
- PMI is sometimes required but MPI is always optional.
- HOA prices increased by 4% from 2005-2015
Purchasing a home can come with a lot of new information, including your monthly mortgage payment breakdown. There are a ton of fancy words, acronyms, and percentages to digest. Let’s explore a few common items you’ll see on your monthly payment.
PITI (Principal, Interest, Taxes, Insurance)
A monthly home loan payment has a few main components commonly referred to as PITI (Principal, Interest, Taxes, and Insurance). These are elements of everyone’s mortgage payments.
The original amount you borrowed is the principal. Depending on your loan program, you pay a certain amount of your total borrowed money each month for the life of the loan. You’ll notice that your principal relates to the interest. As your interest payment decreases, your principal will increase – as does your equity in your home.
Calculated using the principal and your loans interest rate, interest is charged for you to use the borrowed money. Interest will be higher at the beginning of your loan payments and will decrease as you owe less money. This amount can also vary depending on your mortgage plan (for example, if you have an adjustable vs. fixed interest rate).
Each state and even county differs when it comes to property taxes. It’s best to talk with your Mortgage Consultant to find out what you will pay in your area. To give you an idea, in the state of Hawaii the rate is 0.28% vs. 2.38% in New Jersey.
The property assessment determines the amount. This will remain the same regardless of your mortgage amount. Then it’s typically placed in an escrow account, a separate bank account, which auto pays your taxes. This account makes sure they get paid on time.
Home insurance can also vary depending on if you “bundle” or need certain hazard preventions. This, like taxes, is not affected by the size of your mortgage. Most policies pay for replacement by first subtracting depreciation from the cash value. Prices can change if you live in an area prone to natural disasters. It’s best to talk with your insurance agent and see what’s best for you.
What about the other possible charges on your monthly bill?
There are a few options here, too. PMI (Private Mortgage Insurance) is required for Conventional mortgages when the down payment is less than 20% or until you have 20% equity in the home. Another way you might avoid PMI is a Loan-to-Value ratio (LTV) of 80% of the appraised amount. Thus, not everyone who has a new mortgage needs PMI.
Although it’s not mandatory, home owners can have MPI (Mortgage Protection Insurance). MPI is designed to help protect you against the risk of defaulting on your loan vs. PMI which is protection for the lender.
MPI can make payments for you if an unusual, insured event causes you to miss a payment or two. A policy normally has previsions to finish paying the insurance in case the primary loan holder passes away. MPI can also have plans set in place to help with disability or unemployment. Each of these circumstances can cause financial distress.
Home Owners Association (HOA) or other condo/ co-op fees vary by neighborhood. While not every neighborhood has an HOA, they are becoming more common and increasing in price. In 2005, the country average monthly fee was about $250. By 2015, it rose to $331, which exceeded the inflation rate by 5.9%.
It’s also important to note that HOA fees don’t stop when your mortgage is paid off, they are there to stay. However, there are some huge benefits to them. Some communities not only offer landscaping services but maintain a community pool or park. They also may replace roofing or paint the exterior. So be sure to consider whether or not a home with an HOA works for you.
Why is all this important to know before purchasing a home?
As you search for your dream home, keep in mind the property taxes, HOA, and the type of insurance you might get. These will all be included in your monthly payments. A Mortgage Consultant is here to help you estimate those costs. The final price can be determined as you find the home. Until then we are here to help!
Here’s a Mortgage Calculator for a quick estimate of your monthly mortgage payments.