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Mortgage Payment Components: What You Need to Factor In

Your mortgage payment is only one piece of your new home payment.

Your mortgage payment is only one piece of your new home payment.

Orange County, CA – It’s time to get back to basics for a week here at OCF, with a short primer on mortgage payments.

If you’re trying to determine your mortgage payment you’ll probably start with an online payment calculator. These calculators are very accurate for determining the principal and interest payments. But that’s only a portion of what you can expect to pay when you make the leap from renter to owner. So we’re going to factor in the other mortgage payment components.

Principal and Interest:

The lender charges the borrower interest for the privilege of using their money. Mortgage interest is first to be paid and is charged on the remaining balance of the loan.

Each month, your mortgage payment will pay off the interest that has accrued over that month and pay off a small portion of the principle. As the years go on, more and more of your fixed mortgage payments go toward the principal.

So, for example, if you have a $1,000,000 loan at 5% interest, your monthly interest is going to be 1/12th of 5%, or .4166%. So each month, the interest part of your mortgage payment is going to be $4,166.67, and anything over that goes to pay the principal.

Private Mortgage Insurance:

If you invest less than 20% down on your home, you may be required to obtain Private Mortgage Insurance (PMI).  PMI doesn’t insure your home or belongings. Rather, it insures the lender that you won’t default on your payments. If you do default, the PMI kicks in and pays the lender. Statistically speaking, people who invest less than 20% tend to default significantly more often.

2nd Note:

Some borrowers avoid the payment of PMI by obtaining a second loan for the loan amount that exceeds 80% of the value. For those that do, factoring in the principal and interest payment on the 2nd loan will be important.

Hazard Insurance:

Hazard insurance is homeowner’s insurance. It’s called hazard insurance because it covers all of the potential home hazards. Hazard insurance covers physical damage done to your home by perils like a fire, flood, hurricane, or landslide. Lenders require that borrowers pay for a year’s worth of hazard insurance as part of the closing costs to make sure the home is protected from the get-go.

Property Taxes:

Property taxes can be levied by the city and county, but you can be sure they’ll be charged. The best way to determine what these will be is to check with your local tax assessor’s office. Your real estate agent will also be able to provide you that information on the homes that you’re interested in.

HOA Fees:

Condominiums and planned unit developments (PUD’s) commonly charge Home Owner’s Association fees. A PUD is a single family home in a master planned community. Both condominiums and PUD’s have common maintenance fees that get passed along to the home owners. Street cleaning, gardening, security, painting and maintenance of common areas are some of the fees that are typically covered by these fees. Although these are not included in your mortgage payment, you do need to account for them.
Mello-Roos:

 This is a special assessment for California homeowners. Learn about the history here. Newer home communities use these fees to fund new infrastructure projects like schools, parks, roads and fire stations. Older communities can impose Mello-Ross fees as well. These fees are not capped and can rise or fall with a 2/3 vote from the community.

So, you can see that a mortgage payment here in Orange County, CA can be much more than just the principal and interest payment. We can’t stress enough how important it is to identify the cost of the others fees that you’ll be expected to pay for your new home. It can make a big impact on your budget.

To help identify what your mortgage payment will look like give me a call.

Scott Storace 949.973.0141

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