4 factors that can influence your mortgage payment

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Buying a property? There are a lot of variables that determine your monthly mortgage payment. Here are four key factors you should take into consideration as you work your way through the lending process.

Female mortgage rep seated at table explaining something to clients. [1]1. Your cash down payment
By definition, a down payment is the percentage of your home’s purchase price that you pay up front when you close on a home loan. Your down payment can have a significant impact on many aspects of your loan — especially your mortgage rate. As a general rule, if you can come up with a larger down payment, you’ll save money over the life of the loan, thanks to a lower mortgage rate.

You should be aware of some common situations that may limit your mortgage loan options. For example, if your cash down payment is less than 20% of the sale price; if someone gives you a gift for all, or part, of the down payment; or if you have enough for the down payment but need the lender or seller to cover all or part of your closing costs.

2. Private mortgage insurance
If your cash down payment is less than 20% on a conventional mortgage loan, your lender will likely require you to carry private mortgage insurance (PMI). This insurance protects the lender – not you — in case you default on your mortgage loan. The PMI premium may be a monthly payment, an upfront cost on the mortgage, or a combination of upfront cost and monthly payment. For more details on PMI, take a look at the Consumer Financial Protection Bureau’s tips [2].

3. The type of property being purchased
Will the new property be your primary residence, a vacation home, or an investment property? Depending on the property type and how you intend to use the home, your interest rate will vary. According to lenders, this is the general ranking of properties from least to most risky:

  • Primary residence
  • Condo or townhome
  • Investment property or vacation home
4. Discount points
These are fees collected by a lender in exchange for a lower mortgage interest rate over part or all of the life of your loan, depending on the product you chose. Each point equals 1% of the loan amount. So, for example, each point on $100,000 will cost you $1,000. A mortgage banker can help you determine if paying points is appropriate for you.


Article printed from Bank of the West: https://changematters.bankofthewest.com

URL to article: https://changematters.bankofthewest.com/2016/08/11/4-factors-can-influence-mortgage-payment/

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[1] Image: http://blog.bankofthewest.com/wp-content/uploads/2016/08/mortgage_rep_helping_crop.jpg

[2] Consumer Financial Protection Bureau’s tips: http://www.consumerfinance.gov/askcfpb/122/what-is-private-mortgage-insurance.html

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