What are the components of a monthly mortgage payment?

If you are searching for a new home, then chances are you have used our convenient mortgage calculator. Such tools are a great way to begin a home search, but it is important to remember their answers are only rough estimates. Depending upon your credit, the final selling price of a home, interest rate, duration of the loan and other factors, your actual monthly mortgage payments may be higher or lower than the estimated payments.

Use the following checklist to create a budget that takes all the components of a monthly mortgage payment into account:

1. Principle and interest

The actual amount borrowed to purchase the house consists of two parts, mortgage principle and interest.

2. Property taxes

Property taxes are an ongoing cost of owning a home. Never assume your property taxes will remain the same as those of the former owner. Instead, check with your real estate agent about how the new selling price will impact the expected property taxes owed when you purchase the home. Increasing real estate prices can result in a higher property tax bill when a purchase goes through. Additionally, because of inflation, property taxes often increase every year.

3. Homeowners insurance

Homeowners insurance is also individualized depending upon your credit score, location and previous claims related to the property. Before making a final offer on a home, it’s a good idea to call at least three insurance agents to obtain homeowners insurance quotes, especially if the property is located in a high risk area such as a beachfront or is a difficult-to-insure structure. In such situations, insurance can boost the estimated monthly mortgage payment out of a buyer’s reach.

4. Escrow

In most cases property taxes and homeowners insurance are  escrowed as part of your monthly mortgage payment. However, in some cases you can opt-out and pay the fees directly. Either way, be sure to plan ahead.

5. PMI, or private mortgage insurance

PMI is required in most situations where less than a 20 percent downpayment was made when purchasing the property. PMI will typically run .05 percent to .01 percent of the amount.

6. HOA, or homeowners association fees

These are shared expenses required to maintain a community or other shared property. Typical costs range from well under $100 per month to thousands of dollars annually, depending upon amenities. HOA fees may be paid separately from the mortgage, by month or annually, in which case they will not appear as part of a monthly mortgage payment. And, of course, not all homes are part of a community governed by a homeowners association, and are not subject to association fees.

Shopping for a new place? Find a local realty expert who can help or search our real estate listings.