Frequently Asked Questions
A standard mortgage payment is calculated using the principal loan amount, the interest rate, and the loan term. This establishes your base Principal and Interest (P&I) payment. Additionally, lenders often include property taxes and home insurance in your monthly bill, collecting a twelfth of the annual costs each month to hold in an escrow account.
A larger down payment reduces the principal amount you need to borrow, which directly lowers your monthly payment and total interest paid over the life of the loan. Furthermore, putting down 20 percent or more usually eliminates the need for private mortgage insurance (PMI), significantly reducing your monthly obligations.
While your Principal and Interest (P&I) payment remains fixed on a fixed-rate mortgage, your property taxes and homeowners insurance premiums fluctuate over time. Since these costs are often bundled into your total monthly mortgage payment via an escrow account, an increase in local tax rates or insurance premiums will cause your total monthly payment to rise.
You can significantly reduce total interest by choosing a shorter loan term, such as a 15-year mortgage instead of a 30-year one, which accelerates principal repayment. Alternatively, making extra payments toward your principal each month or making one extra payment per year on a standard term will reduce the balance faster and save you thousands in interest.
The interest rate is the base cost of borrowing the principal amount, used to calculate your monthly payment. The Annual Percentage Rate (APR) provides a broader measure of the cost of borrowing because it includes both the interest rate and any broker fees, discount points, or closing costs. Comparing APRs helps you evaluate the true overall cost of different mortgage offers.