When Mortgage Payments Start
The first mortgage payment is due one full month after the last day of the month in which the home purchase closed. Unlike rent, due on the first day of the month for that month, mortgage payments are paid in arrears, on the first day of the month but for the previous month.
Say a closing occurs on Jan. 25. The closing costs will include the accrued interest until the end of January. The first full mortgage payment, which is for February, is then due March 1. For example, lets assume you take an initial mortgage of $240,000 on a $300,000 purchase with a 20% down payment. Your monthly payment is $1,077.71 under a 30-year fixed-rate mortgage with a 3.5% interest rate. This calculation only includes principal and interest but does not include property taxes and insurance.
Your daily interest is $23.01. This is calculated by first multiplying the $240,000 loan by the 3.5% interest rate, then dividing by 365. If the mortgage closes on Jan. 25, you owe $161.10 for the seven days of accrued interest for the remainder of the month. The next monthly payment, the full monthly payment of $1,077.71, is due on March 1 and covers the February mortgage payment.
How To Pay Your Mortgage Using A Credit Card
Not all issuers, such as Discover, American Express, Mastercard or Visa, permit paying mortgage payments by credit card. With some cards, this is only an option if you go through a third-party payment platform .
In addition, many mortgage lenders are not fans of this option and do not accept credit cards.
Most lenders wont accept credit card payments for the mortgage and the services that do offer the ability to pay via credit card tend to charge a service fee that offsets the value of any rewards youd be earning, McBride says.
Problems and emergencies, such as an illness or job loss, can and do happen, however. Until you get back on your feet, paying your mortgage with a credit card could be your only option.
Check with your card issuer first. While Mastercard allows mortgage lenders to accept debit and credit cards for payments, Visa has only given the green light for mortgage lenders to take Visa debit and prepaid card payments.
Paying with this method might also seem like an easy way to gain some points on a rewards credit card, but, again, the fees involved can be substantial. These will likely erase the value of any points or cash back you earn.
Fixed Rate Vs Adjustable Rate
A fixed rate is when your interest rate remains the same for your entire loan term. An adjustable rate stays the same for a predetermined length of time and then resets to a new interest rate on scheduled intervals. A5-year ARM, for instance, offers a fixed interest rate for 5 years and then adjusts each year for the remaining length of the loan. Typically the first fixed period offers a low rate, making it beneficial if you plan to refinance or move before the first rate adjustment.
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Lengthen Your Mortgage Term
Instead of choosing a shorter mortgage term, you might want to opt for a lengthened mortgage term. For example, you may consider choosing a 30-year fixed-rate mortgage instead of a 15-year fixed-rate mortgage.
Lets say you borrow $200,000 to buy a home with an interest rate of 4%. Your mortgage payment would be $955 per month over the course of 30 years .
Now, lets say you keep the same loan amount and interest rate and consider a 15-year mortgage instead. Youd pay $1,479 per month .
Lengthening your mortgage term can make a big difference in how much you pay per month, though keep in mind that youll also pay interest for a longer period of time.
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Switch To An Adjustable
An adjustable-rate mortgage offers a lower rate for a set time running between one month and 10 years, which may come in handy if you need to temporarily reduce your mortgage payment. Just be sure you understand the adjustments and have a plan for handling future monthly payment increases.
One tip: If you plan to sell your home in the near future, you can use your monthly ARM savings to pay down your loan balance each month, which will put more cash in your pocket when its time to sell.
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Whats Included In My Mortgage Payment
A typical monthly mortgage payment has four parts: principal, interest, taxes and insurance. These are commonly referred to as PITI.
The mortgage payment estimate youll get from this calculator includes principal and interest. If you choose, well also show you estimated property taxes and homeowners insurance costs as part of your monthly payment.
This calculator doesnt include mortgage insurance or guarantee fees. Those could be part of your monthly mortgage payment depending on your financial situation and the type of loan you choose.
Which Home Mortgage Option Is Right For You
With so many mortgage options out there, it can be hard to know how each would impact you in the long run. Here are the most common mortgage loan types:
- Adjustable-Rate Mortgage
- Federal Housing Administration Loan
- Department of Vertans Affairs Loan
- Fixed-Rate Conventional Loan
We recommend choosing a 15-year fixed-rate conventional loan. Why not a 30-year mortgage? Because youll pay thousands more in interest if you go with a 30-year mortgage. For a $250,000 loan, that could mean a difference of more than $100,000!
A 15-year loan does come with a higher monthly payment, so you may need to adjust your home-buying budget to get your mortgage payment down to 25% or less of your monthly income.
But the good news is, a 15-year mortgage is actually paid off in 15 years. Why be in debt for 30 years when you can knock out your mortgage in half the time and save six figures in interest? Thats a win-win!
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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:
Check Your Mortgage Paperwork First
- Find out if youre affected by the LIBOR switch
- And if so, checking your mortgage index
- On your Closing Disclosure form
If you have an ARM, go ahead and check to see what index its tied to. Pull out your Closing Disclosure and look for the Adjustable Interest Rate Table.
As you can see, it will detail the initial interest rate on your loan, along with the index and margin in question. You may something like the image above, which stands for 12-Month LIBOR, or 1-year LIBOR.
Many ARMs are attached to LIBOR, meaning once they become adjustable after the first three, five, or seven years, the rate will be determined by the margin plus the associated LIBOR index.
So if your margin is 2.25, and the one-year LIBOR index happens to be 1.75%, your fully-indexed mortgage rate would be 4%.
But what happens if there is no longer a LIBOR to peg your mortgage rate to? What happens then?
Does the index go to zero, allowing you to enjoy the floor rate for the remaining term on your mortgage?
Or do you just get a rate at your margin, perhaps as low as 2.25%? I wish that were the case.
Apparently, banks have already figured this out and prepared for the worst. And by worst, I mean covering themselves in the event the index needs to be changed for whatever reason.
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Calculate The Number Of Payments
A 30-year mortgage would require 360 monthly payments, while a 15-year mortgage would require exactly half that number of monthly payments, or 180. Again, you only need these more specific figures if you’re plugging the numbers into the formula an online calculator will do the math itself once you select your loan type from the list of options.
What Are The Types Of Mortgages
In addition to there being multiple mortgage terms, there are several common types of mortgages. These include conventional loans and jumbo mortgages, which are issued by private lenders but have more stringent qualifications because they exceed the maximum loan amounts established by the Federal Housing Finance Administration .
Prospective homebuyers also can access mortgages insured by the federal government, including Federal Housing Administration , U.S. Department of Agriculture , U.S. Department of Veterans Affairs and 203 loans. Minimum qualifications for these mortgages vary, but they are all intended for low- to mid-income buyers as well as first-time buyers.
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What’s In My Monthly Mortgage Payment
Your monthly mortgage payment includes more than just the price of your home. [Principal, interest, taxes, and insurance are the components of your monthly payment, and its important to understand each element so you know what youre paying for.Principal is the amount you borrow and have to pay back, which may include the sales price of your home, minus your down payment. If you put $15,000 down on a $150,000 loan, your principal balance is $135,000.Interest is a percentage of your principal balance. You pay interest back to your lender, who charges you for borrowing money from them.Taxes, specifically, property taxes, are charged for real estate property , and are determined by your local government.Insurance includes your homeowners insurance, private mortgage insurance if its required, and any supplemental insurance, like flood insurance, if it applies to your property. Insurance protects both you and your lender from potential losses.
Can I Lower My Monthly Payment
There are a few ways to lower your monthly payment. Our mortgage payment calculator can help you understand if one of them will work for you:
Increase the term of the loan. The longer you take to pay off the loan, the smaller each monthly mortgage payment will be. The downside is that youll pay more interest over the life of the loan.
Get to the point where you can cancel your mortgage insurance. Many lenders require you to carry mortgage insurance if you put less than 20% down. This is another charge that gets added to your monthly mortgage payment. You can usually cancel mortgage insurance when your remaining balance is less than 80% of your homes value. However, FHA loans can require mortgage insurance for the life of a loan.
Look for a lower interest rate. You can think about refinancing or shop around for other loan offers to make sure youre getting the lowest interest rate possible.
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How To Determine How Much House You Can Afford
Your housing budget will be determined partly by the terms of your mortgage, so in addition to doing an accurate calculation of your existing expenses, it’s important to get an accurate picture of your loan terms and shop around to different lenders to find the best offer. Lenders tend to give the lowest rates to borrowers with the highest credit scores, lowest debt and substantial down payments.
How Much Home Can You Afford
Buying too much house can quickly turn your home into a liability instead of an asset. Thats why its important to know what you can afford before you ever start looking at homes with your real estate agent.
We recommend keeping your mortgage payment to 25% or less of your monthly take-home pay. For example, if you bring home $5,000 a month, your monthly mortgage payment should be no more than $1,250. Using our easy mortgage calculator, youll find that means you can afford a $211,000 home on a 15-year fixed-rate loan at a 4% interest rate with a 20% down payment.
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What Is Mortgage Insurance
There are two kinds of insurance associated with a mortgage payment. The first one is property insurance, which protects the home and everything in it, more or less, from man-made and natural disasters. The second kind of mortgage insurance is called PMI and if you bought your home with a downpayment of less than 20%, you will have to pay this insurance in order to protect the lender, if you suddenly can’t pay your loan back.
Can My Mortgage Payment Go Down
Weve covered instances where your mortgage payment can increase, but did you know that its also possible for your monthly payment amount to decrease? In addition to a downward adjustment of an adjustable rate and the possibility of property taxes or homeowners insurance premium decreases covered in earlier sections, one of the most common reasons for a reduction in your monthly mortgage payment is the loss of private mortgage insurance.
Here Are Mortgage Rates For Sept 13 202: Rates Go Up
Today a few key mortgage rates climbed higher. If you’re shopping for a home loan, see how your payments might be affected by inflation.
A couple of closely followed mortgage rates are now higher. The average 15-year fixed and 30-year fixed mortgage rates both moved higher Tuesday. The average rate of the most common type of variable-rate mortgage, the 5/1 adjustable-rate mortgage, also floated up.
Though mortgage rates have been rather consistently going up since the start of this year, what happens next depends on whether inflation continues to climb or begins to retreat. Interest rates are dynamic and unpredictable — at least on a daily or weekly basis — and they respond to a wide variety of economic factors. Right now, they’re particularly sensitive to inflation and the prospect of a US recession.
With so much uncertainty in the market, if you’re looking to buy a home, trying to time the market may not play to your favor. If inflation rises and rates climb, this could translate to higher interest rates and steeper monthly mortgage payments. For this reason, you may have better luck locking in a lower mortgage interest rate sooner rather than later. No matter when you decide to shop for a home, it’s always a good idea to seek out multiple lenders to compare rates and fees to find the best mortgage for your specific situation.
What Is The Best Mortgage Term For You
A mortgage term is the length of time you have to pay off your mortgagestated another way, its the time span over which a mortgage is amortized. The most common mortgage terms are 15 and 30 years, though other terms also exist and may even range up to 40 years. The length of your mortgage terms dictates how much youll pay each monththe longer your term, the lower your monthly payment.
That said, interest rates are usually lower for 15-year mortgages than for 30-year terms, and youll pay more in interest over the life of a 30-year loan. To determine which mortgage term is right for you, consider how much you can afford to pay each month and how quickly you prefer to have your mortgage paid off.
If you can afford to pay more each month but still dont know which term to choose, its also worth considering whether youd be able to break evenor, perhaps, saveon the interest by choosing a lower monthly payment and investing the difference.
Whats Included In A Mortgage Payment
Your mortgage payment consists of four costs, which loan officers refer to as PITI. These four parts are principal, interest, taxes, and insurance.
- Principal: The amount you owe without any interest added. If you buy a home for $400,000 with 20% down, then your principal loan balance is $320,000
- Interest: The amount of interest youll pay to borrow the principal. If the same $320,000 loan above has a 4% rate, then youll pay $12,800 for the first year in interest repayment
- Taxes: Property taxes required by your city and county government
- Insurance: Homeowners insurance and, if required, private mortgage insurance premiums on a conventional loan
When determining your home buying budget, consider your entire PITI payment rather than only focusing on principal and interest. If taxes and insurance are not included in a mortgage calculator, its easy to overestimate your home buying budget.
Pay Attention To Loan Fees
When you take out a home loan, be sure to pay close attention to the closing costs. There are typically 3 to 6% of the loan amount in closing costs, including origination charges, prepaid interest, and property taxes.. Choosing a higher interest rate in exchange for lender credit can reduce your upfront costs. You can save money in the short term by using this strategy, so dont overlook it if you plan on selling your house or refinancing in five to eight years.
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Paying Down More Principal
As noted above, the time when you start paying more in principal is called the tipping point. The interest portion starts to drop with every subsequent payment. And it can take years for you to get to that point.
Since the amount of interest you pay depends on the principal balance, you can reduce the total interest on your loan by making larger principal payments as you pay down the loan. You can do this by making a single lump-sum payment, which is normally called a prepayment, or by putting some additional money on top of your regular mortgage payment.
Let’s say your payment is $500 per month. your payments are $6,000 for the year. Adding an additional $100 for half the year means you’re paying $6,600. That additional $600 ends up going to the principal balance.
While this may sound really good, the question remains: Should you pay down your mortgage with extra payments? That depends on your financial situation. It only really makes sense if you can truly afford it and if your income is enough to support an emergency fund and retirement account contributions among other things. After all, the money you use to pay down your mortgage is money that can be used elsewhere. And you’ll want to make sure your lender doesn’t charge you any prepayment penalties or fees.