What does your mortgage payment cover each month? Let’s discuss.
Every homeowner knows what to expect to pay toward their mortgage each month, but not everyone understands what specific costs make up this recurring monthly payment. To help you gain a better idea of what you’re really paying for, let’s break down what exactly is included in each of your mortgage payments.
First, there’s your principal balance—the amount you owe to your bank for the property’s flat value. When you first start paying off your mortgage, a large portion of your payments will go toward your interest—the second component on our list. However, over time, the amount of your payment devoted to paying off interest will steadily decrease.
Another portion of your mortgage payment is your property taxes. In the state of Florida, there are two kinds of property taxes: ad valorem taxes (which are paid in arrears and go toward public works like road work) and non-ad valorem taxes (which are paid in advance and go toward community-related expenses, such as waste management).
Next, there is the matter of homeowners insurance. Homeowners insurance protects homeowners and lenders alike by covering the property’s value in the event of unforeseen damage, such as from a fire.
It’s important not to confuse homeowners insurance for the next expense on our list: private mortgage insurance. Most loans carry private mortgage insurance with them to protect lenders from a total loss if you default on your loan. However, only homeowners who put down less than 20% when they purchased their property will have to pay for this additional expense, which, in most cases, drops off once they’ve gained 20% equity. There are some loan programs in which private mortgage insurance (also known as PMI) remains as an additional expense for the life of the loan, though. The bottom line is that you need to have a clear discussion with your lender about what to expect whenever you take out a mortgage.
Finally, people often ask us about whether homeowners association (HOA) fees are included in their mortgage payment. Actually, no. This additional fee isn’t technically part of your mortgage but it is still your responsibility as a homeowner to pay. If your property is within an HOA, you must make this payment as diligently as you would any other expense, as the association could take out a lien against you otherwise. The good news is that the money you pay toward your HOA fees each month goes toward keeping your neighborhood in good shape. These fees are designed to account for general upkeep, as well as the enforcement of certain rules and regulations.
Hopefully, this has cleared some things up for you. Of course, no two homeowners will be in the exact same situation. When you work with us at Success Mortgage Partners, we will always be very up-front with you regarding what you can expect from your specific monthly payment.
If you have any other questions or would like more information, feel free to give us a call or send us an email. We look forward to hearing from you soon.