In addition to principal and interest, the mortgage payment calculator includes these cost considerations:
- Private mortgage insurance (PMI)–this is an extra layer of protection for the lender that is required with some loans. If you buy a house with less than 20% down payment or equity, some lenders will require PMI. Certain lenders also require it with conventional loans if they are not backed by the government.
- Hazard insurance–protects you as a homeowner against the costs of damage from fire, vandalism, smoke and other causes. It is commonly confused with a homeowner’s insurance policy, so it is important to clarify that it is not a separate policy but part of a homeowner’s policy.
- Property taxes–when you buy a home, property taxes can be factored into your monthly mortgage payment. These taxes are generally imposed by the county, and often include local taxes for school districts, utilities or city governments. Property tax rates and rules vary depending on your location.
Why did my total monthly mortgage payment increase?
It is not uncommon for monthly mortgage payments to change during the term of the loan. This can happen for two main reasons:
- There are changes in your property tax, tax assessment, insurance premium or association fees (if applicable)
- You have an adjustable-rate mortgage (ARM) and the rate changes
When you take out a mortgage, you can choose a fixed-rate or an adjustable-rate mortgage. On a fixed-rate mortgage, the principal and interest will remain the same. On an adjustable-rate mortgage, the interest rate can change periodically.
Whether the loan is on a fixed-rate or an adjustable-rate mortgage, the mortgage payment can change due to changes in property taxes and insurance premiums. The taxes and insurance portion of your mortgage payment is held in an escrow account until the bills are due at which time they are paid on your behalf. Each year, the loan servicer will perform an escrow analysis and will provide a written notification of changes to the amount of the mortgage payment.