What Factors Are Included In Your Monthly Mortgage Payments?

What Factors Are Included In Your Monthly Mortgage Payments?

When purchasing a new home you will have to pay a mortgage or a set portion of the loan you took out to buy the home back to the lender on a monthly basis. However, many people just pay this money each month and have no idea what they are really covering with their payment. So what are you covering in your monthly payments?

Related Blog: Saving Money to Buy a Home? Here Are 5 Tips to Help

Here are the typical factors that are included in your monthly mortgage payment:

Interest Rates

At the beginning, the largest portion of your mortgage payment goes back to the lender to help cover the interest rate that you owe on the home you have purchased. Interest rates today can vary anywhere between 3.5%-5+%, but the actual rate continuously fluctuates and depends on what the average rate was at the time when you took the mortgage out on your home.

As you pay more down on the mortgage, less will go to interest and more will go to pay off the actual cost of the home you purchased.

Property Taxes

A certain portion of your mortgage goes towards the property taxes on the property you own. In Florida, the average property tax rate is about 1.10% of the value of your home and property. The typical homeowner with a property of median value will pay about $1,769 in property taxes split into 12 monthly payments, on an annual basis.

Homeowner / Property Insurance

A portion of your mortgage payment each month will go to cover various insurances that you have on your property. Depending on where you live, such as in Florida, this could include things like sinkhole, hurricane, and flood insurance, as that is typical coverage for that area. Choosing insurances to protect your property from this can be made easy when coupling the payments with one's mortgage each month.

This will also include any general home owners insurances you need to purchase in case damage was to occur to your home.

Principal Amount of the Loan

The final piece of the mortgage payments you make cover the principal payment that is put down on the home to cover the cost of the money your lender lent you to purchase the home. This is the paid, list price of the property minus any down payment you made on the property.

The longer you are paying the mortgage on your property, the lower the monthly payment allocation toward your interest will be, allocating more toward the principal amount on your loan.

How Your Credit Rating Relates to Your Mortgage - Including in Florida

The final piece of the puzzle to a mortgage is that the above information is assuming that you have a decent or great, credit rating. A minimum FICO score of a 620 is usually required to obtain a mortgage through a typical broker like Fannie Mae or even an FHA loan that allows you to put 3.5% down on your property instead of the traditional 20%+.

To qualify for the best available rates on your mortgage a FICO score of 720 or more will be needed. Most insurance companies will recommend that you stick to a home that costs no more than 28% of your average monthly income as it is deemed to be "too high" of a mortgage payment to be adequately afforded.

For more information on what factors into your mortgage payment or if you’re looking to obtain a mortgage home loan, please feel free to contact us.

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