5 Mortgage Expenses to Expect

When you are preparing to buy a house, it can be difficult to gauge the mortgage expenses that you should expect. Buying a house is a big purchase and you should be as prepared as possible to get started. Here are a few expenses associated with mortgages that you can expect. 

1. Principal

The first thing that you can expect to pay is principal. This represents the balance of the loan. If you get a $150,000 mortgage, this means that $150,000 represents your principal. Once you pay that amount off, the loan is done. Your mortgage payment will be a small percentage of the principal every single month at the beginning, and will increase as you pay further into your mortgage.

2. Interest

Besides the principal, something else that you will pay with your mortgage every month is the interest. This will be the biggest part of your payment by far at the beginning of your loan. If you have a $1000 mortgage payment, it would not be uncommon to pay as much as $950 of that in interest every month, for the first few years. You should be prepared to pay quite a bit in interest.

3. Closing Costs

When you secure a mortgage, you will have to pay closing costs. Closing costs can be very expensive and run several thousand dollars. Closing costs differ from lender to lender, so it is usually a good idea to shop around. Lenders are required to give you a good faith estimate of closing costs within three days of applying, so you will usually get a good idea of what they will cost relatively quickly. You can then use this estimate to secure a good deal on closing costs with your chosen lender. 

4. PMI

Private mortgage insurance or PMI is something that homeowners hate to pay. Private mortgage insurance is required by most banks when you are borrowing more than 80% of the value of the home. This means that you are basically paying for insurance that will pay the bank back in the event that you default on the loan. Even though you may know that you will never default on the loan and will make your payment faithfully every single month, you still have to get PMI. Once your equity grows to above 20%, you can get the PMI eliminated. In the meantime, it is very difficult to get rid of it. You can expect to pay PMI every month along with your mortgage payment.

5. Taxes and Insurance

With most mortgages, you will pay money into an escrow account for your property taxes and insurance. The mortgage company will take the money that you pay them, save it and then pay the bills when they come due. They will send a check to your insurance provider every year. They will also take care of the tax payment with the county that you live in each year as well.