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Why your mortgage payment is more than just your mortgage.

confused photoIf you haven’t ever had a mortgage before, exactly what is included can be confusing. For those uninitiated in the ways of modern banking, they might assume that their mortgage payment would be money that pays off their mortgage. While this is a valid assumption, the truth is more complicated. Your mortgage payment will likely include a number of fees and costs all rolled together. These could include:

  • Mortgage Balance

First of all, your payment does include a certain amount of money that will pay down the principle of the loan. In other words, this part of your payment will make your total loan smaller. However, at the beginning of the life of your loan, it may not pay off as much as you assume. For example, the first payment on a $150,000 loan might be $800 or more, but as little as $200 may go towards reducing the loan balance. The bulk of the first payment will likely be interest.

  • Mortgage Interest

Likely the largest portion of your payment at the beginning of the life of your loan, the interest is paid to the bank in return for letting you borrow the money for your new house. As you continue to pay down the balance of the loan, your interest payments go down. As a result, with each payment you make, more and more of the payment is applied to the balance of the loan as opposed to the interest.

  • Private Mortgage Insurance

Private mortgage insurance, or P.M.I., is a type of insurance that protects the lender, not you. It is generally required on conventional loans that have less than a 20% down payment. This insurance protects the lender in case you default on the loan by insuring that they don’t lose their investment in your house. Typically P.M.I. can be canceled after you’ve reached a certain amount of equity on your property.

  • Homeowners Insurance

Homeowner’s insurance covers your property in case of accident or disaster. While the individual policies can vary, carrying a valid homeowners policy is generally required by the lender, and is also just good common sense. Most of the time your mortgage payment will include an escrow payment that goes into an account and is used by your lender to make an annual or biannual insurance payment.

  • Property Tax

That’s right, everyone wants to make sure you pay your taxes. Since missed tax payments can be levied against the property, your lender will want to make sure you make those payments. Another portion of your monthly mortgage payment will be put into an escrow account to pay whatever property taxes are due on the property.

While these are most of the costs you’ll see rolled up into your mortgage payments, don’t forget about these other expenses that come with home ownership:

  • expenses photoMaintenance: Your new home will require regular maintenance and repairs to keep its value. Things like plumbing leaks, new hot water heaters, and roof repairs are now your responsibility. Don’t forget to plan for them.
  • Utilities: If you want to have water and electricity in your new home, they’ll expect payment. Of course, most apartments also require you to pay for your own utilities, but be aware that some of those monthly payments, like garbage collection, are sometimes rolled up in the rent payment, and they’ll now be your responsibility.
  • H.O.A. fees: Some houses are in areas that require payments to the Home Owner’s Association. If you buy a house in one of these areas, make sure you know what that payment is and what it includes. Sometimes it just includes access to member-only areas and sometimes it includes all your exterior maintenance.
  • Up-keep: Owning your own house means mowing your own grass, weeding your own flowerbeds and trimming your own hedges. Of course, you can also hire someone to take care of all those things, but either way, be aware that up-keeping your own house will cost you some time and some money.

Owning your own home is a great feeling, but when you’re looking for one, make sure to keep all the costs in mind. Because not being able to afford your new home is not a great feeling. If you’re unsure about how much you can afford, feel free to stop in or just make the call to McInturf Realty. We have a whole team of real estate professionals that can help answer your questions before you get in over your head.

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1110 Tuscarawas Avenue NW

New Philadelphia, Ohio 44663

Phone: (330) 364-6648

Fax: (330) 364-2355