A mortgage calculator is a great tool to use when you are getting ready to purchase a home, but it is not as accurate as you might think since it leaves out some additional fees. The mortgage payment is made up of more than just the principal and interest.

Lets break it down!

Principal

The principal is the original chunk of money that you borrow from your lender. So if you purchased a house worth $300,000 and you put 10% down ($30,000) and borrow the rest, that means your principal is $270,000. So the principal payment is the amount that is going toward the amount of your loan on your home.

Interest

Interest is basically what you pay the lender as compensation for letting you borrow money from them. Interest is a percentage of the principal - the amount of the loan that you have left to repay.

Interest rates are always changing so when you get your loan, we recommend that you look for a loan with a fixed interest rate. This way, you know you will be paying each month and will not be paying a higher interest rate in the future.

Taxes

Property taxes are calculated on the assessed value, not the market value. The market value is the price you agree to pay for your home, the assessed value is calculated and set by a property assessor. The property assessor will take a look at your home and tell the government how much it is worth.

Taxes will vary from property to property. You can get a good idea of what your property taxes will be by looking at the property tax records from the previous year. You can look at that number and divide it by 12 to see what you will be paying monthly.

When do you pay property taxes? Though the government charges property taxes once a year, you can pay property taxes as part of your mortgage payment. The lender will add the property tax portion of your payment into an escrow account and pay your property taxes for you at the end of the year.

Homeowner's Insurance

Homeowner’s insurance is definitely recommended and in many cases required. This protects you from having to repair or rebuild your home (your biggest investment) after a fire, tornado, storm or another catastrophe. Usually before you close on your home you will need to choose a home insurance plan to go with. Different plans offer different coverage options and you will be able to choose the one that fits your need best.

When do you pay your homeowner’s insurance? As with property taxes, a portion of your homeowner’s insurance will be paid each month as part of your mortgage payment. That amount goes into a special escrow account and will be drawn out when the insurance payment is due.

Private Mortgage Insurance (PMI)

PMI protects the lender not the borrower. PMI is required on some loan programs depending on the amount of the down payment and the program you are involved in. Usually lenders calculate PMI by taking .5-1.5% of your principal then applying that to your mortgage payment. Usually, this can be avoided if you put 20% or more down on your home.

Homeowner’s Association Fees (HOA Fees)

The HOA fee goes to maintaining the property and shared facilitates or services of that certain private residential community. Some homes belong to a homeowners association (HOA) others do not. If your home is inside an HOA, you may have an additional monthly or yearly fee required by the association. Depending on the community, your fee could be anywhere from $50-$350 per month so be sure to take this into consideration when you find a home you love. The HOA fee is not included in your mortgage payment but will be taken into consideration when calculating your mortgage payment.

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