Most people enter into a mortgage payment with the expectation that they can budget for that exact amount going forward. While it’s true that a 30-year fixed mortgage payment will not change there are more variables that go into that monthly payment then the principal payment against your purchase price.
1. Your Loan Type is an Adjustable Rate Mortgage
At Title Mortgage our loan officers pride themselves on being very informative and clear about the types of loan programs available to our clients. Adjustable rate mortgages can be an excellent low interest rate option for many buyers but it is very important that you understand exactly how an adjustable rate loan works. Typically the terms are 5-year arm, 7-year arm or 10-year arm. This means that the loan is fixed for the first 5, 7 or 10 years and then the rate will adjust annually for the life of the loan. This product is a smart choice for someone who knows they will only own the home for a set period of time. Having a loan product with an adjustable rate mortgage means you can count on the rate going up after the fixed term is over. This will then increase the monthly mortgage payment.
2. Increased Property Taxes
If you put less then 20% down on your home you will typically be required by your lender to escrow your property taxes. The tax responsibility is then split into 12 payments and added to your monthly principal payment. When you obtain a home loan your lender will use the current property tax rate to determine what your monthly payment will be. In most cases you will pay this mortgage amount for the first year you live in the home. It is very common for towns to reassess home values shortly after a sale. If your town determines that your tax assessment increases that monthly mortgage payment is going to increase as a result.
3. Insurance Costs and Condo Fees
As part of that required escrow account you may also be required to have your mortgage lender pay your homeowners insurance and condo fee on your behalf as well. This means that the monthly cost of these fees will be rolled into your mortgage payment and property tax payment. Similarly to property taxes these fees are set at the time of purchase but both condo fees and homeowners insurance can increase from time to time. These increases don’t usually amount to much when spread out in 12 months of payments but they can change that bottom line.
4. Human Error
Sometimes even a mortgage lender can make a mistake. That is why it is so important that you understand what can change your monthly payment and ask for an explanation from your lender as to exactly why the payment has increased. Don’t be shy to ask your questions and review calculations to understand what is being done. You want to be completely confident in the payment you are making every month.
To avoid surprise increases make sure you pay attention to any property tax notifications you receive from your town office even if you know your lender will be paying your taxes. You should also make sure you understand your annual homeowners insurance fees and exactly what is included. You want to make sure you are adequately covered but you also don’t want to over pay.
Buying a house is a big responsibility and it doesn’t stop after the papers are signed. Getting a good understanding for how your mortgage payment and escrow payment is calculated is important. The loan officers at Title Mortgage are ready and available to explain this to you and breakdown the payment calculation before it’s time to sign the papers.