What’s In Your Monthly Payments?
When you finance your home with a home loan or mortgage, you will need to make monthly payments. It’s important to take this into account when deciding on the home loan or mortgage that’s right for you. But what exactly does your monthly payment cover, and why does it sometimes change?
- Principal:
This is the money you pay based on the actual cost of your home, or the amount borrowed. As you pay the principal, the equity of your home will rise, and the principal amount will go down. - Interest on Your Loan:
When you take out a loan to buy your home, you will need to pay interest on that loan, which is a percent of the amount you are borrowing to be paid over time. Most of the mortgage payments when you start will go towards paying off the interest on the loan. As time goes on, this will shift, so that you are paying more towards the principal on your mortgage, however, this will not affect your monthly payment. - School and Property Taxes:
These are the taxes based on the property and the school district the property lies in. These can change your monthly payments, and will need to be paid annually even after you finish paying off your mortgage. Property taxes are based on the value of the home after an assessment, which is determined by the value of surrounding properties as well as the home’s condition. Property taxes can fluctuate due to changes in the local government's decisions and will increase and decrease accordingly, without regards to your mortgage. These taxes go towards public services, such as local fire department and police, road maintenance, and schools. - Insurance:
Both Private Mortgage Insurance (PMI) and Homeowner’s Insurance can change the price of your monthly payments. The amount of this portion of your monthly payment will depend on the policy and provider that you have. These are also determined by the value of the home and the location. You will want to research the best plans for you.
All of these together are bundled into your monthly payments. Once you have paid off the mortgage, you will need to pay the property tax and insurance directly, as you will obviously no longer have monthly mortgage payments.
To learn more, or if you want help in calculating your monthly mortgage payment, speak to one of our experts here at ProVisor. We have several offices throughout Wisconsin or you can begin your application online.
