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How Do You Calculate Monthly Mortgage Payments?

Calculating your monthly payment is no simple task. There are many components that go into it beyond the actual cost of the home and the interest. However, you can get an idea of what costs are included and then make your own calculations before you purchase your next home. This will save you from being surprised when you go to close on your home. Then, when you are ready to get an expert opinion on Washington DC mortgages, contact The Busch Team to see what your rates could be.

What Goes Into a Monthly Mortgage Payment?

A monthly mortgage payment consists of a number of factors. The first of these is the principal mortgage amount. This is the money in your payment that is actually going toward paying off your home. The next factor is interest. Interest can be either annual or monthly, and it is the part of your payment that you are paying to the bank for giving you your loan. You’ll also be paying for homeowners insurance. Homeowner’s insurance can vary depending on the size of your home and the location of your home. Larger homes in at-risk areas may have more expensive insurance.

You will also be responsible for property taxes. These are dependant on your county and a variety of other factors. Certain up-and-coming areas may have higher property taxes. This part of your monthly payment goes to your county tax collector and can be processed through your escrow account. One final factor that you may have to consider is private mortgage insurance, or PMI, which is typically required for a home that was purchased with a down payment of less than 20%. PMI can be removed when the homeowner has reached 20% equity on their home.

Most of these costs will be paid in one lump sum to your lender. They will then distribute the funds to the appropriate parties so there is less work on your plate. This is done through an escrow account. Not every homeowner has an escrow account, however. There are certain situations where omitting an escrow account lowers the closing costs. However, in those cases, you will be responsible for making the property tax payment to your county and the homeowner’s insurance payment to your insurance company.

Varying Factors

There are many factors that contribute to the amount that you would pay monthly on your home. For instance, the amount that you put down when you purchase the home has a significant impact on the size of your loan and, therefore, your monthly payment. Say that you had $100,000 to put towards a down payment and you decided to purchase a $300,000 home. This leaves you with $200,000 that you must borrow from a lender which is much less than if you put down, for instance, $50,000. That $100,000 is also well over the 20% minimum that you need in order to avoid PMI, which means that your monthly payment is reduced even further.

There are other things to consider as well. For example, the length of your loan is going to determine how much you pay each month. Mortgages are divided into 15-year loans and 30-year loans. 30-year loans will have you paying less each month in principal but you will ultimately pay more in interest. 15-year loans by contrast will have you making higher monthly payments, but you will pay significantly less in interest.

Another thing to remember is that you also impact the amount that you will pay. Your credit score and your debt-to-income ratio have a serious effect on your monthly payment. The higher your credit score is and the less debt you have, the better your interest rate will be. This will ultimately translate into less paid per month. 

Of course, all these varying factors can be overwhelming and it is no surprise that many homeowners do not wish to make these calculations themselves. You can find many tools online for helping you calculate your monthly mortgage payment if you can provide the number mentioned. Additionally, your county typically has resources to help you determine what your property taxes will be.

Looking for Washington DC Mortgages?

The Busch Team specializes in Washington DC mortgages and we strive to provide our clients with the highest quality care possible. That is why we care enough to educate our clients on how to determine their monthly mortgage payments. We want you to be informed before you enter the home buying process so that you are prepared. If you are ready to learn more about mortgages or you want to work with an expert who knows what they are doing and can guide you in the right direction, look no further than The Busch Team. Apply now on our website to start your journey to your next home. 

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