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You have to be careful when using a lot of mortgage calculators. Most of them will only tell you what the principal and interest payment amount will be per month. Your true monthly mortgage payment can be hundreds of dollars more and you really want to fully understand what you will be paying each month when you make the biggest purchase of your life.

What makes up a mortgage payment?

A mortgage payment is normally made up of what is called the full PITI or Principal, Interest, Taxes, and Insurance.

Principal

The principal is the amount of your loan each month that is actually reducing your loan balance.

Interest

The interest represents the fee you are paying each month to the lender for the right to use their money to pay for your purchase.

Taxes

Taxes - This represents the yearly property taxes you pay. On many loans the lender makes you pay into an Escrow account each month that will then be used to pay your property taxes. To figure out what rate you can use for property taxes, just Google the name of the city where the house you are considering purchasing is and the term "property tax rate". For example: "Southlake Property Tax Rate".

Insurance

This category can actually represent two things. The lender requires that you have insurance on the asset (house) that is used to secure your loan in order to proctect their interests. Obviously, a customer is less likely to repay a loan if the house burns down and they have no insurance to cover this.

  • Home insurance is normally paid for on a yearly basis and you pay it through your lender. Each year once you are nearing the end of the prior years contracted home insurance period, the lender will reach out to you to see if you want to renew or select another provider.

    To get an idea of what you might pay yearly for home insurance, visit this article on the average cost of home insurance.

  • Private Mortgage Insurance (PMI) is actually designed to protect your lender in case YOU default. It is required on all loans where you do not put down at least a 20% down payment. Once your Loan-to-Value is less than 80% then you can apply with your lender to get them to remove the PMI premiums that you pay each month. PMI is typically .5 to 1% of the loan amount. If you want to get a a better idea of exactly what your PMI rate would be then conact your potential lender and ask them.

    FHA loans call this a Mortgage Insurance Preimum or MIP. For FHA loans it is now paid for the life of the loan, but there are things you can do to get it canceled. To find out what MIP rate to use for FHA loans and how you can eventually get the MIP canceled, read this article.