What Factors Affect Monthly Mortgage Payments?

A lot has been said about monthly mortgage payments with some advising to pay off higher monthly rates so that the mortgage is cleared off fast, while others say to stick to a reasonable sum for the entire duration, so that your savings are not affected much. Quite a few tools can help you to calculate what your monthly mortgage payment might be, based on the principal amount, interest rate, private mortgage insurance, down payment, and the sum required in the escrow account.

Let us discuss those in detail:

Principal Amount
This is the total price of your home. An average term of a mortgage is generally 30 years, with the actual price being divided by 30 and then 12 to arrive at a monthly sum. If you can increase this amount slightly in some months, the overall sum will be reduced since the amount that interest is added to, comes down.

Down Payment
The lender has to be reassured that you hold a vested interest in the property, which is decided by the down payment. It also helps to bring down the financed principal amount.

Closing Costs
Appraisal fees, closing costs, and additional assorted charges have to be factored in when a mortgage loan is closed off. However, these expenses can be included in the mortgage so you don’t need to pay those upfront when it is time for closing.

Interest Rate
Unfortunately, quite a bit of your monthly sum is allocated to the interest associated with the loan. Therefore, you must decide on a decent interest rate that you can afford every month. Fixed rate mortgages ensure the interest rate is fixed till the end of the term, while adjustable rate mortgages involve changes in interest rates as per fluctuations in the market. If you can’t take risks, it is best to stick to fixed rate mortgage as you know exactly how much to pay.

Private Mortgage Insurance
If the sum you have paid as down payment is low and you have a poor credit rating, private mortgage insurance has to be paid to the lender. This is a precaution in case you default on the mortgage.

Escrow
This is a savings account that finances amounts including property taxes and homeowners insurance. The mortgage company is basically protecting their interests in the property, by making sure that you can afford to pay for taxes and insurance.

Thus you can see how monthly mortgage payments are influenced by several factors. It is best to consult an expert who can provide you with proper guidance before you purchase any mortgage.