When you buy a house, your mortgage payment will be one of your largest monthly expenses. Naturally, you want to know — need to know — how much you can expect that payment to be.
To figure out how much your loan payments will be, you must first identify a few important pieces of information about your home purchase and mortgage type.
Mortgage Payments Depend on Your Home Purchase Details
The amount of your house payment will increase proportionately with the purchase price of the property, but that’s not the only factor you have to consider.
For example, how much money will you put down on the home? The more cash you can bring to close, the lower your payments will be. If you don’t have a lot of money to put down, you will have to finance more with your mortgage.
The way that home loans are structured, you will pay compounded interest on the amount you finance. The more you can put down, the more equity you will have — and the faster you can pay down (or pay off) your loan.
The Type of Home Loan You Get Affects Your Mortgage Payments
Besides the purchase price of your home, the interest rate on your mortgage is what most significantly influences your monthly payments. Even a small difference in the rate can raise or lower your payment
For example, let’s say you purchase a $250,000 house with 5 percent down and a 30-year loan. In that scenario, you will pay about $100 more each month if your annual interest rate is 4 percent, as compared to a loan with a 3.5 percent annual interest rate.
Factors that can help you secure the lowest possible interest rate include your credit score, how much you can put down on your house and the type of mortgage you choose (VA, FHA, conventional, etc.). If you can swing the payments on a 15-year loan as opposed to the more common 30-year loan, you may significantly lower your interest rate.
Private Mortgage Insurance May Influence Your House Payment
The third factor that can significantly affect your mortgage payment amount is whether you must pay private mortgage insurance (PMI) as a part of your loan. This insurance protects the lender from financial loss in the event you default on your loan.
If you put less than 20 percent down on your house, the lender will likely require you to carry PMI. The cost of PMI varies, but you should assume that it will be around 1 percent of the loan amount each year. If you finance $200,000, this means you will pay about $2,000 each year for PMI. Divide that into 12 monthly payments and you will add about $167 to each month’s payment.
It’s important to note that you do not benefit from PMI, nor does it gain you any equity in your home. To keep your mortgage payment as low as possible, avoid PMI if you can.
Intercap Lending has a monthly mortgage payment calculator to help you experiment with different home loan scenarios. Based in Orem, Utah, we help clients throughout northern Utah with all their home purchase and refinance needs. Contact us today to speak to one of our experienced loan officers and to learn more about how much your mortgage payments may be on your new home.