Beyond Your Mortgage: Considering Other Costs That Could Inflate Your Monthly Payment – Guest Post
If all you had to pay every month was the principal on your home’s selling price, you would pay off your home loan in about half the time of your actual loan terms. Instead, you have to pay for interest and a number of other items that are tacked onto your monthly bill, in some cases doubling what you would have paid. It is important to understand all of these potential fees when planning your budget for buying a home. Otherwise, you may be taken by surprise at closing time or when your first bill comes and you don’t have enough money.
Here are a few of the common items that may be included in your monthly mortgage payment, besides your principal:
If you are borrowing money from a bank, you are paying interest. You may get lucky and get a very low interest rate based on your exceptional credit and the timing of the market, but your rate will never be 0 percent. However, in the first several years of paying off your home, you may be surprised to learn that the majority of your bill goes to paying interest, while only a small fraction is going toward your principal. You must build up a lot of equity in your home before you start to shift the balance toward the principal.
Carrying insurance on your home is always recommended, but if you are financing your home, it is required. Rates will vary significantly depending on the value of your home, whether you chose optional coverage like flood insurance, the provider you chose and whether you have multiple policies with that provider. The premium is typically rolled into your payment and stored in escrow until your bill is due. Then the lender pays the bill on your behalf.
Private Mortgage Insurance
Unless you paid at least 20 percent for your down payment or you qualified for special loan terms, you will likely have to pay for private mortgage insurance. This insurance protects the lender in case you default on the loan. Most lenders automatically cancel PMI once you build up at least 20 percent equity in your home, but you may have to manually cancel it if not. In the meantime, you may have to pay $100 to several hundred dollars per month on the insurance, depending on the value of the home.
Depending on where you live and the value of your home, property taxes can cost several thousand dollars a year. Like your homeowner’s insurance, these fees are broken down into a monthly payment that is stored in escrow until your bill comes due. Taxes may change from year to year, depending on decisions made by your county commissioners, so your bill may rise if your property taxes rise.
Homeowner’s Association Dues
Some homes are a part of a community that includes amenities such as a pool, a fitness center and yard maintenance. Condos and townhomes are typically part of a homeowner’s association, but some newer developments of single-family homes also have HOAs. If the home you buy has an HOA, you must pay monthly dues, which can be $100 a month or more. You can’t opt out of being a part of the HOA, so these fees must be included in your budget.
Many variables are included in your monthly mortgage payment, and it is important to understand all of them to determine a final monthly budget. Work closely with your realtor and your mortgage broker to understand how these fees will be finalized after your loan closes so that you can plan accordingly.
As for specifics, well, you know it’s a finance blog, so as long as your topic is in some way finance related I’m good. Obviously, for your benefit, it helps to write something about buying a house, looking at mortgage rates, etc, but you can imagine that there are quite a few articles on the site about buying a new home, how to get a mortgage, etc. So, it would work well if you have a different take on the subject in some fashion. I think I wrote an article some years ago relating other expenses people need to take into consideration that they’ll have to look at outside of just the mortgage price but since I can’t remember when or even what I said then a newer version of that article with a different voice might be something to explore. In any case I’ll take a look at what you come up with.
Trey Conway is the main content writer for Mortgage Calculator.biz. A website that helps people calculate how much home they can afford. He has been interested in mortgages and creating websites since he graduated from Appalachian State University. You can reach him anytime at his Facebook page https://www.facebook.com/trey.conway.758.