When you decide to buy a home, getting the best possible loan is important. It can save you thousands of dollars. How you can keep your monthly mortgage payments down? These are the different components of the loan that can affect your monthly mortgage payments. 1. Down Payment: The down payment is how much cash you will put down up front. The rest of the price is how much you will finance with the lender. For example, if the purchase price is $300,000, and you are putting 20% down, that means you will be putting down $60,000, and the loan amount will then be $240,000. The more money you can put down, the lower your monthly payment will be. Basically, the less you finance, the less will be amortized over the life of your loan. Also, you usually get a better interest rate when you put down at least 20%, so that helps out as well. 2. Loan Life: The number of years the loan will be amortized over affects the monthly payments. The longer the life of the loan, the less you pay each month because it is spread out over a longer term. Typically, the longest term is 30 years. Of course, the longer the term, the more total interest you will pay, so be sure to weigh that in as well. 3. Interest Rate: One major variable that will differ between lenders is the interest rate. This is the rate they are charging you for borrowing the money. The interest rate will change your mortgage interest payment each month. The higher the rate, the more your payment. For a $240,000 loan, the payment including just principal and interest at 6.5% would be $1,517. At 7.0%, it is $1,597. A $80 difference per month does not sound like a lot, but over 30 years, that is $28,800. 4. Property Taxes: Property taxes are added into your monthly cost of owning a home either by escrowing it with the lender or by you saving to pay it at the end of the year. The area where your property is located will influence this more than anything. The higher the tax rate and higher the appraisal values, the more dollar amount you will pay each month. 5. Insurance Rate: Similarly, the higher the insurance rate, the more you will pay per month. This is mostly affects houses that are in special insurance areas that need more coverage, like flood zones or hurricane areas. 6. Points: Points are paid by the Borrower in order to buy down the interest rate. If you get some insanely low interest rate from one lender that seems completely out of whack from the other quotes, this might be because they are quoting you a rate with points. A point is equal to 1% of the loan amount, and you pay this point as part of your closing costs. So for example, with a loan for $240,000, one point would be $2,400 and that point might buy your interest rate of 6.5% down to 6.25%. Buying down your rate will lower your monthly payment.
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