The monthly payment for your house (or future house if you are first time buyer) is more than just the loan (principal + interest). The bank will charge you the principal and interest each month, plus monthly taxes and insurance. The tax and insurance portion are put into an escrow account (which means they hold it for you and you can't really touch it). The bank uses the funds in the escrow account to pay your real estate taxes and insurance when due. The bank does this because they want to be sure you don't go without insurance or skip out on the tax bill, since they are holding the property as collateral. If the property has HOA fees (typical for condos), those are paid separately from your mortgage payment. For thorough budgeting the monthly HOA fee should be counted towards your overall housing payment which is why we provide that as a field on this calculator.
- Loan Amount - how much you are borrowing (the price of the home minus the down payment), the more you borrow the higher the payment.
- Interest Rate - this impacts your payment, the higher the interest rate, the higher the payment.
- Loan Term - mortgages are typically 30 or 15 years, but this calculator allows several options including a custom loan term.
- Annual Real Estate Tax - what the local municipality charges for the right to be there.
- Homeowners Insurance - a minimum amount of insurance will be required for the loan, but you may also want to price in additional insurance like flood and earth quake.
- Homeowners Associate Fee (HOA) - typically quoted as a monthly fee, this applies to condos or other types of properties where all the units in the development pay for upkeep, maintenance, etc.
Some things to think about with your mortgage loan:
- Over time your payment will increase! That is true even if you have a fixed rate loan. But how can the payment go up on a fixed rate loan!? The payment goes up because the taxes + insurance on your house (the escrow portion of the payment) will almost always increase a little bit each year. The tax portion can go up to due to the assessed value of your home increasing. Tax increases can also come from new bond measures for schools, public works, etc. The insurance premium can rise due to inflation (prices going up slowly most of the time) and the insurance company jacking up rates. Every year the bank will do an 'escrow analysis' to figure out your new payment. The same is true for any HOA payments which are typically handled outside of escrow, but every year maintenance costs may go up with inflation too.
- Fixed rate loans set a floor for your minimum payment (except the increases in the taxes + insurance mentioned above). With a variable rate mortgage your payment may go up if interests rates rise or the bank is allowed to raise your rate per the contract.
- Some people like going for a 15 year loan because they want to pay off their house faster. Not having a mortgage is a game changer in life and a very admirable goal. It is correct that a 15 year loan will be paid off sooner than a 30 year loan, assuming minimum payments are made. However, with the 15 year loan, the minimum payment is much higher than the 30 year loan. You can get some flexibility for free if you opt for a 30 year loan, which comes with a much lower minimum payment, but pay it on a 15 year schedule! Then if something goes wrong financially you have some maneuvering room. There is nothing wrong with paying ahead on a loan and it is a great habit to get into. Some loans (from really crappy, evil companies) do have prepayment penalties, so check into that before signing.