The major part of your mortgage payment is the principal and the interest. The principal is the amount you borrowed, while the interest is the sum you pay the lender for borrowing it. Your lender also might collect an extra amount every month to put into escrow, money that the lender (or servicer) then typically pays directly to the local property tax collector and to your insurance carrier.
Typical costs included in a mortgage payment:
Principal: This is the amount you borrowed from the lender.
Interest: This is what the lender charges you to lend you the money. Interest rates are expressed as an annual percentage.
Property taxes: Local authorities assess an annual tax on your property. If you have an escrow account, you pay about one-twelfth of your annual tax bill with each monthly mortgage payment.
Homeowner's insurance: Your insurance policy can cover damage and financial losses from fire, storms, theft, a tree falling on your home and other hazards. If you live in a flood zone, you’ll have an additional policy, and if you’re in Hurricane Alley or earthquake country, you might have a third insurance policy. As with property taxes, you pay one-twelfth of your annual insurance premium each month, and your lender or servicer pays the premium when it's due.
Mortgage insurance: If your down payment is less than 20 percent of the home’s purchase price, you’ll probably be on the hook for mortgage insurance, which also is added to your monthly payment.
How a mortgage calculator can help: As you set your housing budget, determining your monthly house payment is crucial — it will probably be your largest recurring expense. As you shop for a purchase loan or a refinance, Bankrate’s Mortgage Calculator allows you to estimate your mortgage payment. To study various scenarios, just change the details you enter into the calculator.
The calculator can help you decide:
The loan length that’s right for you.
If your budget is fixed, a 30-year fixed-rate mortgage is probably the right call. These loans come with lower monthly payments, although you’ll pay more interest during the course of the loan.
If you have some room in your budget
A 15-year fixed-rate mortgage reduces the total interest you'll pay, but your monthly payment will be higher.If an ARM is a good option. With fixed rates at record lows, adjustable-rate mortgages (ARMs) have largely disappeared. But as rates rise, an ARM might be a good option for some. A 5/6 ARM — which carries a fixed rate for five years, then adjusts every six months — might be the right choice if you plan to stay in your home for just a few years. However, pay close attention to how much your monthly mortgage payment can change when the introductory rate expires.
If you’re spending more than you can afford.
The Mortgage Calculator provides an overview of how much you can expect to pay each month, including taxes and insurance.
How much to put down.
While 20 percent is thought of as the standard down payment, it’s not required. Many borrowers put down as little as 3 percent.