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What Will My Mortgage Payment Really Be?

May 12, 2022

Happy man using laptop and credit card during online shopping

Mortgage payments contain multiple components, so it’s important to know what your mortgage payment includes. You’re paying towards your principal, interest, property taxes, and insurance all in one monthly payment. Here’s what you need to know before signing a contract.

The First Step: Getting a Loan Estimate 

When you apply for a mortgage loan, your lender will provide you with a loan estimate, or a good faith estimate. Lenders are required to provide this document within 3 days of applying for a mortgage. It’s very important to look over the loan estimate, as it gives details about the loan you’re applying for.

Looking At Your Loan Estimate

On the first page, you’ll see a section called “Projected Payments.” This is a breakdown of the different components of your monthly mortgage payment. These include the principal and interest, mortgage insurance, and estimated escrow. Here’s what you need to know about each of the components of your monthly projected payment:

Principal and Interest

This is your base monthly payment. It combines the principal (which is the amount you’re borrowing) and the interest (which is the fee you pay to borrow the money) into one number. This number will stay consistent over time if you have a fixed-rate mortgage. If you have an adjustable-rate mortgage (ARM), there will be a minimum and maximum payment in this section instead of a single number. 

Mortgage Insurance

Depending on the type of loan you have and how much money you’re putting down, you may or may not have a number in the Mortgage Insurance section. If you have an FHA loan, you’ll have to pay MIP (Mortgage Insurance Premium), and if you have a conventional loan, you may have to pay PMI (Private Mortgage Insurance). Both of these types of mortgage insurance help to protect the lender.

If you’re getting an FHA loan, MIP is required. If you make a down payment of less than 10%, you’ll have to pay mortgage insurance for the life of the loan. If your down payment is 10% or higher, you only have to pay it for the first 11 years of the mortgage. 

If you’re getting a conventional loan, PMI is required if you make a down payment of less than 20%. Once you have 20% equity, you will no longer have to pay for mortgage insurance. 

Estimated Escrow

Depending on the loan you choose, you may have an escrow account on your loan. This is an account that you pay into so that your lender can pay your property tax bills, homeowners insurance, and potentially other property costs. This amount is likely to change over time depending on local property taxes and the cost of insurance. This way, you don’t have to worry about paying your property taxes and insurance bills separately – they’re all bundled into one monthly payment to your lender. 

Underneath these three amounts, you’ll see the sum of these numbers – your Estimated Total Monthly Payment! 

Calculating Your Mortgage Payment Without a Loan Estimate

If you don’t have a loan estimate yet but you’re wondering, “what will my mortgage payment really be?” you can estimate it on your own using a mortgage calculator.