A FULL BREAKDOWN of your future house payment

Certified Mortgage Advisor
NMLS 1701021
Published 
July 21, 2021

Calculator and your monthly mortgage

Now, I'm going to show you everything you need to know about your monthly mortgage payment and give you a tool, a free calculator to help you be able to shop for homes and understand what the mortgage payment is.

Understand the true cost

Often, one of the hardest things to do when looking to shop for a home is understanding the actual true cost of owning monthly. So here's the link that you can download the calculator: https://winthehouseyou.samcart.com/products/max-purchase-price-calculator.

Monthly payments

But first, let's talk about your monthly payments. So this is how much you actually need to pay to the mortgage company every month. If you do take out a loan on a home and it's not as straightforward, it's not just one number all the time. So your monthly mortgage payment is made up of several different things combined. Then the lender normally says, okay, you owe this one number here.

Principal

So the first thing is principal. So principal pays down the loan. So let's say you take out a loan for $300,000. The principal, every time you pay principal each month lowers that. So from 300,000 to 299,000 and some hundred dollars.

So it's lowering your principal with each month on your mortgage payment. You can choose to pay an extra principal if you want to pay down the loan even sooner. So maybe you got a 30-year loan. You can actually pay extra principal each month with your lender to shorten that down if you want to. And you'll also pay less interest on it.

Interest

So your principal also has an interest in the interest charged to you based on the loan, the outstanding loan balance. So not the initial loan balance. It's what the current loan balance is. And this is as an annual number. So for instance, if we have a 3%. That's 3% annually that you pay on that loan.

So if it's a hundred thousand dollars loan, you're paying $3,000 in interest every year that the balance is a hundred thousand. So in the first year, we have that balance. So you're going to be paying about $3,000 that first year, and then the next year, your balance is actually lower because you've been paying down the principal.

And so you'll be paying interest on the new balance and that's going to re amortize. So basically what's happening is you pay less and less each month. Then more and more principal each month.

Difference between fixed and adjustable

So with our interests, something interesting here is that there's going to be a difference whether it's fixed or adjustable.

This is going to depend on the type of loan that. If you get a fixed 30 year fixed 15 or whatever, a fixed-rate loan, your interest rate stays the same. And so does your monthly payment, the interest won't change because their interest rate doesn't change. However, if you get an adjustable-rate mortgage, there could be changes depending on the type of adjustable-rate mortgage that you get.

So you want to be careful in understanding this principle and interest. If you have a fixed-rate loan should save. So if I know what the number is now, if it's a thousand dollars in principal and interest now, and it's a fixed-rate loan, it's going to always stay a thousand dollars a month over the next 30 years or however long my loan is.

But if it's adjustable, then it could actually change depending on the type of loan that.

Mortgage Insurance

Then you also have mortgage insurance, and this is going to change depending on the type of loan that you have with conventional loans. This normally will drop off. Once you have 20% equity in the home. If you have an FHA loan, a USDA loan, then mortgage insurance stays on for the life of the loan, unless there's a special, some special considerations that we won't get into depth here.

Mortgage insurance protects the lender

It's extra insurance. If you don't pay back the loan, that's what that's there for. So it doesn't protect you.

Escrow

Now, escrow is interesting because it's actually optional, depending on how you set up your loan normally to waive an escrow account, you need about 20% down with most lenders, but escrow basically takes these lump-sum payments and convert them into monthly payments for you.

Taxes

So for instance, taxes in Ohio taxes are semi-annual payments. All right. So they're paid two times per year. So let's say that the lender didn't collect taxes for you. All of a sudden in July, you have a tax bill and it's $2,000 and you're like, oh my gosh, I didn't save $2,000 for taxes, but I have this $2,000 bill.

So escrow was created. So lenders will actually help you save this money. And the way that they do it is they'll basically say, okay, if your taxes are $1,200 a year, pay us $100 per month, we'll set it aside in a separate savings account for you. And then when that bill comes, we'll pay it out of that for you.

Again, if you have less than 20% down, a lot of lenders will force the escrow account. We'll make it a requirement. So something to be mindful of and that's going to be up to you. This SRO account sometimes is on loans and sometimes isn't on loans. So taxes are often an escrow, the same thing with homeowners insurance is usually paid annually.

So instead of having this surprise, bill of insurance come up, what happens is a lender will say, we'll just take that number divided by 12, keep that money in a separate savings account for you. And then when the bill comes, we'll pay it out of that savings account. So often. All of these numbers and put it all together and one bottom line. So they might say you owe $2,000 per month, and that includes everything in here.

Fixed rate loan

Now from a chart to just see how things change. If we're talking about fixed, most people are working with a fixed loan now. With few full-rate mortgages. It used to be a little bit more popular pre-housing crash, but they've just fallen in, fell out of favor a little bit because there is fluctuation with the payment here.

Fixed rate loan increase

Again, if we have a fixed-rate loan, your payment should be the same every single month for the life of the loan until you pay it off. The only thing that will change in your monthly payment, and this isn't up to the lender is if your homeowner's insurance changes or taxes change, often what happens is sometimes people will come to me and be like my mortgage payment changed.

Taxes affects your monthly payment

I thought it was going to be this. And why did it increase? Maybe a couple of years after they bought their home and it's because taxes increased, right? The lender doesn't control your taxes. It's your county and your state. So that might change and often taxes tend to go down, unfortunately. So taxes may change and increase her payment, and there's nothing that you can do about it. You just have to pay more into taxes. You owe the home and you're paying taxes on that.

Homeowner's insurance

If your insurance cost goes up, then so will your mortgage payment. If you're including that in your escrow accounts, and it could go down, maybe you get some savings on your insurance and that lowers your monthly insurance payment.

Principal and Interest

From the chart, green is principal, and yellow is interest. So it's interesting that the first year, there is a spread. There's so much more interest being paid than principal, and that's super common. Over time, what will happen is we pay less and less interest and more and more principal.

However, the payments are going to be the exact same, but what will change is what is being allocated? How much of it goes to interest, and how much of it goes to principal.

Additional costs

Then there's some kind of additional costs in here that we do need to consider.

HOA (if you have one)

One would be the homeowners association. So this may be super small or non-existent for you, or it might be really expensive depending on where you're living. So homeowners association, I've seen the same are anywhere from like 25 bucks to even like $400 a month. It just depends on where you're at.

Utilities

Utilities is a huge consideration as well because a lot of people just look at one mortgage. They just see, okay, what's my monthly payment, but don't forget. You also have utility costs that you need to consider when you're shopping for a home because there's a little bit of this lifestyle creep that can happen.

Remember that you have to pay utilities too, not just mortgage

So maybe someone saying, "I pay $1,500 a month in rent. And so I'm looking at homes at around $1750 for a mortgage". That's fine. But as that creeps up, we also have to remember that utilities are there too, that we do have to keep up. And some of those utilities that we were paying, maybe some of those were included in your prior rent.

So you might not be thinking of the total cost of utilities, so something you really want to keep in mind in here, especially if you're purchasing an older house that may require maybe it's not insulated as well. Air conditioning and heating are going to be really expensive for you, and that could be something you want to watch out for.

Maintenance cost savings

Often it's suggested that you would save a percentage of your purchase price each year in your savings account or maybe a separate account. To be able to afford maintenance costs as they come up and have this kind of buffer in case there are emergency costs or repair costs or whatever that come up, because remember, if you're not renting anymore, you don't have somebody taking care of this stuff for you.

So if the furnace goes out, there's nobody to call it's you. And so you likely want to have some savings built up in there. You don't want to just have this emergency come up and then you have to go use a credit card or something for that.

Be careful of calculators

First I would just be careful of the payments that are shown on sites like Zillow, realtor.com, or whatever, because often they're giving you the best-case scenario considerations there, like 20% down, conventional loan, super low rate, all that kind of stuff. So it's easy to go look at the home and see and think, that's an easy payment I can afford. And go write an offer without considering what the actual monthly payment is".

Try usmortgagecalculator.org

A great one is https://usmortgagecalculator.org/. I really liked that one.

Google sheet

Then also I have a Google sheet that you can use, here's the link: https://www.winthehouseyoulove.com/max-purchase-price-calculator. You can go ahead and download that for free, and it's going to help you compare the monthly payment and considerations for different houses when you're home shopping.

#payment

So let's have a walkthrough. So you can also have this monthly payment calculator. All you have to do is text my number 9373586542, just text: #payment to it, and it will send you the link.

A walkthrough

So here's the instruction. So you want to go to file, make a copy. What I have in here is an option to put in your loan details that you know, maybe you could just want to take a guess right now, or maybe you've been pre-approved and some of this right now, and then I have options where you can put in the house address. Put in the home details, and what will end up happening is you can compare the monthly payment of each of the properties.

House one

So let's start with house one. I'm going to pull up Zillow and show you how to do this. Because a big problem that people have as they're looking for homes, and then they're like, "what's the actual monthly payment how do I compare these side-by-side?" We're just going to pull up random homes.

So what I'm going to do is if I was shopping for homes and I will get the addresses of the homes that I want to compare. Then, I'm going to paste the address to the address field.

Then I'll go ahead and find the price of the first property, in this case, it's $244,900. Let's first actually put in our loan details. So maybe I'm doing 5% down. Let's say my interest rates are 3% mortgage insurance. You can talk to your loan officer about this, this is going to be pretty common for maybe somewhere around a conventional loan is 0.6%, FHA is 0.85%, USDA's 0.35%, VA is 0.6%.

We're going to go with a conventional loan homeowners insurance rate. This could depend on your area, so Florida is going to have much higher homeowners insurance than Ohio would. So the 0.60% is going to be pretty common for my area and we're going to do a 30-year loan.

If you're doing 15 years, just change it to 15. So we're going to do 30 years. Also, take note that you're only changing numbers in blue.

Then, for square footage, let's put in 1,890. Now, the reason we have square footage is I'm going to help you auto calculate utilities, just as a rough estimate so you can get an idea.

On Zillow, what we can do is actually scroll down, and we're going to find monthly cost HOA fees.

For Annual tax, just scroll up and you will see property taxes, 4191 for 2019. Then you will see the utility cost per square foot. This is 14 cents per square foot for utilities, and this might be different for your area or different for a different house. This is just to get a ballpark range. You're welcome to come in here and increase what that cost is or decrease it if you want to. But I think this is going to be a solid number for us to work with.

Then we also have the maintenance savings. This is how much of the home price, what percentage are we keeping away in a separate savings account that we want to save monthly for this home. So 1%, right? So on a $300,000 house, this is 250. So on a $250,000 house, we're saving $2,500 a year. Is that going to be enough for you? And maybe you want to increase it to 2% or 3%, whatever works for you.

So let's say 2% as maybe a better number for us. So it will auto calculate our principal and interest. Taxes mortgage insurance, homeowners insurance HOA.

So $1,600 a month. This is what the lender would actually bill us each month in this scenario. However, there are also the other costs that we need to consider, and this is where a lot of people can get messed up when they're looking at buying a home because they only see 1600, but we can't forget the other costs associated with this home. So we have the utility cost and this is based on that 14 cents a square foot. If I wanted to, I could raise this to 20 and we can see that Maintenance Savings jumps up. So this is going to be a ballpark range for us and utilities. Just keep in mind that the bigger the home, the more that utility cost is going to be which is why we have the square footage in here.

Then here's our monthly maintenance savings. So we're saying we would save $400 every month in a maintenance cost. Again, you can change it so we can drop this down to one if we want to lower them.

So we're going to say around two, just to be conservative. So on here, 244 to 900, we'd be saying we're saving about $5,000. So that actually gives us a total of the monthly payment, plus the other costs that we need to consider and utilities and savings of 2272 per month. That's vastly different than 1600.

And so you can see it, there was that $673 a month in these costs that maybe we didn't consider. So it's a little bit scary to just see the $1,600 is what the mortgage company is charging us or collecting for us, including escrows. But there's another total cost of that home as well.

House Two

So let's compare this to another home. That would be somewhat similar. So this is three beds, two baths in Centerville. Let's compare this one. This is probably very similar. Now, let's put all the credentials like that address, interest, square footage is 2378, Monthly HOA, lets out a hundred bucks. Annual taxes, 4$,368. We're going to keep utility costs the same. We'll do savings of 200.

So now we can take a look at the differences. We had two properties, one's about $50,000 more than the other, and so what does that actually do to our monthly figure, $1,600 to $1,970 that the mortgage company would require. And $824 in this kind of other costs. And so the difference here is actually from $2,272 to $2,794 with these as well.

Compare offers

We can also do house three but what I'm not going to do is use it to compare offers. Change the price to $310,000 and see what would that do to your monthly payment? So same house, going up by about $15,000 and our offer would increase the cost by just about just a little over a hundred dollars per month as our bottom line. So maybe that's something that you want to consider or use here.

You're welcome to use this calculator, however, suits you. So again, if you want this, just text my number 9373586542. Just text, #payment in there to get this. Feel free, to use it, and hope this helps.

Talk with a loan officer
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Only for educational usage. All calculations should be verified independently. Win The House You Love LLC is not a lender, does not issue loan qualifications, and does not extend credit of any kind. This is not an offer to lend and should not be used to make decisions on home offers, purchasing decisions, nor loan selections. Not guaranteed to provide accurate results, imply lending terms, qualification amounts, nor real estate advice. Seek counsel from a licensed real estate agent, loan originator, financial planner, accountant, and/or attorney for real estate and/or financial advice. Read the full disclaimer here.