Posted on: 29 October 2021
Getting a home loan is a necessary step for most people when they decide to buy a home. If you want to get a mortgage, you will need to apply for one and meet the eligibility criteria the lender has in place. If you are getting your first loan, it is important to know that your monthly mortgage payment might include some additional expenses. In fact, here are the expenses you will pay in each monthly mortgage payment.
Principal and Interest
The main part of your mortgage payments is for the principal and interest on the loan. The principal amount is the part of your loan balance that you pay off each month. At the start of your loan, you will not pay a lot toward the principal, but this amount will increase as the loan progresses. The interest charges each month is for the money you pay the lender for lending you the money. At first, you will pay a lot of interest, but this amount gradually decreases as the loan progresses.
Private Mortgage Insurance
Some home loans require private mortgage insurance (PMI). PMI is an extra expense that you add to your monthly mortgage payment. Lenders generally charge between 0.5% to 1.5% of the loan balance per year for PMI. You might not have to pay this expense, but if you do, your lender will add it to your payment each month. If you can avoid paying PMI, you should. In most cases, you can avoid it by choosing loan programs that do not require it or by putting enough money down on the home purchase.
Homeowner's Insurance Premiums
The next expense you must pay each month is your homeowner's insurance. Your lender will divide your annual homeowner's premiums by 12 months to determine the monthly cost of the insurance. They will then charge you the monthly cost with your mortgage payment each month. They will place this money in an escrow account and will pay your homeowner's premiums when due.
The last expense you will likely pay each month is your property tax expense. Your lender will also divide your annual property taxes by 12 months to determine the monthly cost for this bill. They will place this money in the same escrow account and pay your property taxes when due.
When you get home loans, your payments consist of all these things. If you have questions about how lenders calculate payments, talk to a lender. You can also talk to a lender about applying for a loan.Share