There are many factors that combine to determine the dollar amount of a home mortgage loan payment. Any savvy home buyer will take the time to familiarize themselves with all of the components of their mortgage payments so that they know where every dollar goes.
The largest portion of a mortgage payment is for principal and interest, also abbreviated as P&I. The principal portion is the amount that pays down the amount owed on the home loan, and the interest is the portion that pays for the interest on the loan and is determined by the interest rate. When a loan is initiated the majority of the P&I is for interest, while only a small portion pays down the principal of the loan. This changes slowly throughout the life of the loan, as the loan principal decreases the interest is a lesser amount and thus more of the payment goes toward principal.
Another significant portion of a home mortgage loan payment is the mortgage insurance. The insurance amount will vary greatly depending on the loan amount and type. If the home loan is an FHA or VA loan, the mortgage insurance will be determined by the Federal Housing Administration or the U. S. Department of Veterans Affairs, respectively. The dollar amount of mortgage insurance can also be determined by the loan to value ratio of the house. In many cases, mortgage insurance is required for as long as the loan to value ratio is greater than eighty percent. In the case of FHA loans mortgage insurance is required for at least five years.
One of the more important portions of a mortgage payment comprises the property taxes. Property taxes can vary drastically from one city to another. Potential home buyers should contact the city governments of any cities they are considering moving to in order to compare property tax rates. Doing such will help home buyers to make a more informed decision when buying a home.
The last portion of a home mortgage loan payment is the home insurance. Not to be confused with the mortgage insurance, as it is the insurance that actually insures the property, not the loan. It is up to the home buyer to choose which insurance company to buy home insurance from. A wise home buyer will get several quotes to compare before making a decision. It is clear that mortgage payments can be complex, but a buyer who understands where their dollars are going can make better decisions and get more for their money.
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