Mortgage Payment Breakdown

Your mortgage payment typically includes principal and interest and may also include property taxes, home owners insurance. This is often referred to as PITI in the mortgage industry (principal, interest, taxes and insurance). If you have less than 20% down payment or home equity, then you probably have some form of mortgage insurance as well (unless you qualify for a VA mortgage). Some portions of the mortgage payment may change over time.

Principal and interest. If you have a fixed term mortgage, such as one that amortizes for 30, 20, 15 or 10 years, then the total principal and interest payment should stay the same for the term of the loan. Over the life of the loan, you actually wind up paying more towards principal and less towards interest but the total principal and interest remains the same.

If you have an adjustable rate mortgage (ARM), where the interest rate is fixed for a set period, such as a 5, 7 or 10 year ARM, then the principal and interest payment will adjust once the initial fixed period is over and will continue to adjust according to the terms of the mortgage. NOTE: Should you decide to opt for an adjustable rate mortgage, it is crucial that you completely understand how an adjustable rate mortgage works and what the best/worst possibilities may be when the mortgage interest rate adjusts.

Home equity lines of credit (HELOC) typically begin as interest only with the interest rate adjusting when the prime rate adjusts. Some will either become fixed and be amortized for a short term and/or may have a balloon payment.

There are other types of mortgages as well – I’m just trying to cover the most common payment types with this post so that I can cover the other parts of the mortgage payment.

Property taxes. Property taxes are based on how much your home is tax assessed for. It’s not unusual to see the tax assessor increase the taxed assessed value of your home after you have purchased it…especially if your sales price is significantly higher than the current assessed value. In addition, when levies are passed that are attached to property taxes, this causes your property taxes to increase. Should your property taxes increase, your mortgage payment will increase as well. I would plan on having your mortgage payment increase over time for adjustments to property taxes. King County just announced that they will reveal 2019 property taxes on February 15, 2019 and I anticipate that many of us, because of the rapid appreciation our area has seen, will have higher mortgage payments due to property tax increases.

Home owners insurance. Your home owners insurance should not adjust as much as your property taxes. It’s very likely that it will adjust higher for inflation over time and it can also adjust should you make changes to your coverage. NOTE: should you decide to do adjust your coverage, like add earthquake insurance, please be sure to discuss with your insurance provider how much funds you will need to meet the deductible (and make sure you have those funds available). This part of your payment is not fixed – however, it’s not likely to dramatically change.

Mortgage insurance. There are a couple of different types of mortgage insurance. Private mortgage insurance (PMI) is used with conventional mortgages when there is less than 20% down payment or home equity. Private mortgage insurance, if included in your monthly mortgage payment, will eventually drop off your payment once you meet certain equity requirements (refer to your amortization schedule). You can sometimes request that your private mortgage insurance be removed ahead of schedule should you have enough equity – perhaps from appreciation, and once you have been in the home long enough (typically they like to see at least 2 years).

Mortgage insurance on government loans, such as FHA and USDA, are referred to by different names…but they are essentially mortgage insurance. Depending on the amount you have for down payment or equity (if you’re doing a refi) and the type of government loan, the mortgage insurance may stay on the loan and may be required regardless of how much equity/down payment you have at the start of the transaction. FHA has “upfront mortgage insurance” which is typically financed into the mortgage (added to the loan amount) and “annual mortgage insurance” which is included in your monthly payment. If you have 10% down or more, the mortgage insurance remains in the payment for 11 years. If you have less than 10% down, the the mortgage insurance remains on for the life of the loan.

Even though it takes years for FHA mortgage insurance to drop off a payment (if ever), depending on how much down payment you have with a conventional mortgage, it could potentially take many years as well. Odds are, you may be refinancing into a new mortgage or buying your next home before the mortgage insurance, whether it’s private or government “drops off” the mortgage payment.

What happens if your property taxes or home owners insurance changes?  The property taxes and home owners insurance premiums that you pay each month as part of your mortgage payment (unless your escrow reserve account is waived) goes into the lenders “escrow reserve account”. The lender collects these funds and then pays your home owners insurance once a year, when the annual bill is due and pays the property taxes twice a year, when the first half and second half property taxes are due.  Should your property taxes or home owners insurance increase and the lender discovers there is not enough funds in the reserve account (aka “a shortage”), have no fear! They will contact you to let you know how much the shortage is and let you know how much your payment is going to increase (based on the increase to the taxes and/or insurance) and to see if you want to pay the shortage amount in a lump sum and/or additional increase to your mortgage payment. With that said, it’s also possible for the lender/mortgage servicer (who you make your mortgage payment to) to contact you if you have too much funds in your escrow reserve account. By law, the mortgage servicer can only have a certain amount of cushion in the reserve account. In that event, they will offer to send you a check or reduce your mortgage payment.

Bottom line, it’s important to know and understand your mortgage payment. If your home is located anywhere in Washington state and you would like me to review your mortgage, I am happy to help you! No refi or purchase required. 🙂

2019 Property Taxes for King County

King County will unveil how much your property taxes are for 2019 on February 15, the day after Valentines Day. <3

If you recall last year, many were stunned to see just how much their property taxes jumped. Our property taxes increased roughly 27% just last year alone!

If you are in the process of buying or refinancing a home, you need to be aware of changes to the property taxes if the transaction is closing around February 15, 2018 as this could potentially impact qualifying for the mortgage since it will most likely mean an increase to the total mortgage payment. This is especially true if your debt-to-income (DTI) ratios are anywhere near the limits for qualifying. [Read more…]

Good Bye, Seattle’s Alaskan Way Viaduct

The Alaskan Way Viaduct aka Highway 99, was my preferred route when traveling through Seattle. As someone who lives in West Seattle, Highway 99 (or the viaduct) was a great alternative when traveling to downtown Seattle or north Seattle. I voted against the tunnel twice and will miss the views driving the viaduct. I really wish the viaduct would have been retrofitted or rebuilt instead of the tunnel. Anyhow… I thought I would share a video our family created a few years ago about the viaduct – tunnel. No animals were harmed in this video!

I will really miss the viaduct. I enjoyed the gritty drive and will miss the amazing views. When our beloved JP Patches was at our home for my surprise 40th party, he said our elected officials had “tunnel vision” and I could not agree more.

Changes to Limited-Cash Out Refinances

A limited-cash out refinance is a refinance where typically, the home owner receives little to no-cash back at closing. It’s also referred to as a “rate-term” refinance. A limited cash-out or rate-term refinance offers better interest rates and/or pricing for interest rates than a true “cash out” refinance. [Read more…]

Lowest Mortgage Rates of the Year!

Freddie Mac’s Prime Mortgage Market Survey reveals mortgage rates are at very low levels.

The low rates are due to the volatility taking place in the stock market. Sam Khater, Chief Economist states, “it will be interesting to see how the recent turmoil in the stock market will affect home buying activity in the coming months.” [Read more…]

2019 FHA Loan Limits for Washington State

HUD had just announced the FHA loan limits for 2019. Homes in the greater Seattle area, including King, Pierce and Snohomish counties, will have a higher loan limit, often referred to as an FHA jumbo. Not all counties received higher loan limits for 2019. Clark, Island, King, Kitsap, Pierce, Skagit, Skamania, Snohomish, Thurston and Whatcom counties have increased loan limits for 2019.

Here is a complete list of FHA loan limits for all counties in Washington. [Read more…]

BREAKING NEWS: 2019 FHA Loan Limits for Greater Seattle

HUD had just announced the FHA loan limits for 2019. Homes in the greater Seattle area, including King, Pierce and Snohomish counties, will have a higher loan limit, often referred to as an FHA jumbo. The FHA loan limits match those of conforming high balance loan amounts in these counties.

The 2019 FHA Loan Limits for homes located in King County, Snohomish County and Pierce County are:

  • One Unit: $726,525
  • Two Unit: $930,300
  • Three Unit: $1,234,475
  • Four Unit: $1,397,400

Stay tuned for a follow up post which will include all counties in Washington state.

 

2019 VA Loan Limits for Washington State

The loan limits for VA mortgage loans have been announced. 2019 VA loan limits will follow conforming mortgage limits for single family homes.

Here are the 2019 VA Loan Limits:

King County, Pierce County and Snohomish County: $726,525

All other counties: $484,350

VA loan amounts can exceed the loan amounts referenced above. The “limit” is the maximum a veteran can borrower without having a down payment.  Veterans may receive a reduced down payment when the loan amount exceed the loan “limit”.

If a qualified Veteran wanted to buy a home above the loan limit (aka “VA Jumbo”), their minimum down payment is 25% of the difference between the county loan limit and the sales price.

Home Sellers should really consider accepting VA home buyers. Just because they’re putting less down, does not mean they are less qualified. VA home buyers have EARNED this benefit by serving our country. And these days, VA mortgage loans are not any more or less challenging to process and close than any other type of home mortgage. VA loans do not have monthly mortgage insurance and they have very competitive mortgage rates.

If I can help you with a VA mortgage or any type of home loan for property located in Washington state, please contact me.