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. 🙂

Coming Soon: Freddie Mac’s HomeOne Mortgage Program

Later next month, Freddie Mac will be offering a new program for first time home buyers. This mortgage program offers low down payment options without the income limit or geographic restrictions that Home Possible has.

HomeOne will be available for both purchases and rate-term refinances on single family dwellings. At least one borrower on the application must be a first time home buyer when the transaction is a purchase and home buyer education is required. [Read more…]

Common Misconceptions about FHA and Conventional Mortgages

I just received a newsletter from a local real estate agent which had an article about whether buyers should opt for a conventional or FHA loan. I’m pretty certain the real estate agent didn’t write the article, however the author, whoever they are, got a lot of things wrong regarding these two mortgage programs. Many of the items that were wrong are what I think are fairly common misconceptions with these two popular mortgage programs. So I thought this was a grand opportunity to write a post to correct them…I’ll skip the fine hairs 😉 [Read more…]

Stop paying rent: Mortgages with down payment assistance

This post is the last in my series showing different options for buying a home using mortgages with low down payment options. The series started from a posting I saw on Facebook where one of my West Seattle neighbors is trying to find a place to rent that accepts pets. This is my handsome pup, Hitch, who might not be allowed in most apartments since he’s over 65 pounds…even though he’s just a big puppy.  🙂

My previous posts compared using Fannie Mae’s Home Ready program and an FHA mortgage with the goal of keeping the total mortgage payment around $2200.

This post will be using a program from the Washington State Housing Finance Commission which offers down payment assistance. The down payment assistance is actually a second mortgage at zero percent interest that is tacked on to the end of the first mortgage. There are no payments due for 30 years (or when the first mortgage is paid off). Although the down payment assistance interest rate is zero, the interest rates for the first mortgages with this program tend to be higher (as you’ll see with my quote). [Read more…]

eBook: Your First Home Mortgage

I have just updated my guide on how to finance your first home.

If you’re thinking about buying a home located anywhere in Washington state, even if it’s a couple years away, I am happy to help you! You really cannot start the preapproval process too soon. If I can help you, please contact me.

New Updated Guide Book for First Time Home Buyers

Hot off the press (or keyboard?)! The eBook that I wrote for first time home-buyers has been completely updated. Please feel free to share this with anyone you know who is considering buying a home anywhere in Washington state. You can access the eBook below or by clicking this link: Your First Home Mortgage Guide Book by Rhonda Porter 

 

Of course, if you’re considering buying your first, second home, vacation or rental homes in Washington state, I am happy to help you! Click here for a no hassle rate quote or here to start the preapproval process.

How to Buy a Home with your Roommate

Fannie Mae’s HomeReady mortgage allows a home buyer to qualify using “boarder income”.  What does this mean? Remember our favorite roommates Laverne and Shirley?

[Read more…]

UPDATED: First Time Home Buyers Guidebook

I have just updated the e-book that I wrote for first time home buyers.

Please feel free to share it with anyone you know who is considering buying a home in Washington state.