Wondering what your monthly mortgage payment will be? A lot depends on how your loan is structured. Your monthly cost of owning a home doesn’t stop with your mortgage payment. You may also have additional monthly costs tied to confusing acronyms like PMO and HOA. Talking to your Loan Officer about your options can help you learn what you need to be prepared for.
The Total Loan Amount
A home loan of $550,000, will obviously mean a higher monthly payment than that for a $280,000 loan. Where you want to live affects the cost of housing. A small town might let you live in an almost-mansion for the same price you’d pay for a tiny home with a postage stamp yard in a bigger city.The size of your home loan is just the starting point, however.
The Loan Term
Pick a short term mortgage, and your monthly payment will be higher, but you’ll pay way less interest and your home will be paid off much sooner. If you don’t have a lot of extra bills and want to achieve full home ownership as soon as possible, this is a good plan.
Pick a long term mortgage, and you’re in for the long haul as far as paying off your house, but you’ll have a lower monthly payment. Just realize that the interest you’ll be paying will add up a lot over that extra half decade or so you tack onto the end of your loan.
The Down Payment Amount
Handing over a big down payment can lower your monthly payment by a fair bit. Just be careful and don’t sink all of your assets into your home. You need a cushion if anything happens, and equity in a family residence can be difficult to liquidate in a hurry.
The Interest Rate
This factor is simple: a higher interest rate means a higher monthly mortgage payment, and a lower rate means a lower payment. Since your interest rate is tied to the type of loan you get and to your credit score, do you best to clean up credit before applying.
The PMI Requirement
If you have to finance more than 80% of your home, you’ll have to buy private mortgage insurance (PMI.) This can be another monthly expense on top of your mortgage payment. If you get your equity over 80%, you may be able to drip this requirement or refinance to get out of it.
The HOA
If your neighborhood has a homeowners association (HOA), you may also have to pay HOA fees on a monthly basis. An HOA can be nice when it’s making sure everyone keeps their grass cut and their dog from barking and prevents loud music late at night, but HOA fees can be unpredictable and rise over the years, and you might be prevented from doing renovations if the HOA board disapproves.
However, HOAs are becoming more and more common, especially in highly desirable neighborhoods, so they may end up being a necessary evil you just have to budget for. If so, don’t expect them to go away like PMI after a certain point. You’ll be paying HOA fees long after your final mortgage payment.
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