By Arthur Murray
Freaked out because your mortgage payment has increased? Before you write that next mortgage check, let’s investigate what’s going on with the payment. The increase could come from a number of factors and there may be something you can do about it besides paying more each month.
Many lenders incorporate the following elements into the bill for a typical 30-year mortgage:
Principal: This is the amount of the payment that goes toward paying off the original amount of money borrowed, excluding the interest.
Interest: This repays the lender for taking the risk on a loan. Initially, most of your monthly payment will go toward the interest.
Taxes: The mortgage company estimates the property taxes your county and/or state will charge, divides that amount by 12, and collects it monthly. The lender will then pay the taxes when they’re due each year.
Insurance: You can find two types of insurance in this portion of your bill. The first is your homeowners insurance. Lenders require you to have home insurance to protect their investment. The second is private mortgage insurance. If you did not make a down payment of at least 20 percent, your lender usually requires you to purchase this insurance. It protects the lender in case you default on the mortgage.
Why did my bill go up?
Let’s take a closer look at why your lender suddenly asked you to pay more. Typically, the total you pay toward the principal and interest should remain the same throughout the life of the mortgage (though the ratio of how much goes toward principal and toward interest will change).
Adjustable rate mortgages are the exception to this rule. This type of mortgage allows lenders to change the interest rate periodically. Adjustable mortgage rates are not as common as they once were, however.
More than likely, you can rule out principal and interest and look to one of the other two categories.
- Property taxes — Your property taxes may have gone up. Contact your county and city to find your local tax rate. If taxes are the culprit, there’s little you can do – other than having your property reassessed. This is risky because there’s no guarantee the assessed value of your property will go down, and it could go up, which would mean you’d owe even more.
- Insurance payments — If it isn’t taxes, consider your insurance payments. Like principal and interest, private mortgage insurance premiums generally don’t change after your loan closes. So you can eliminate that as well. That leaves home insurance premiums. Providers do increase them from time to time, however there are steps you can take to reduce this cost.
Shop your policy
This is a good idea even if your monthly payments don’t increase. Consumer advocates recommend that you shop for new home insurance quotes at least once a year. Carriers evaluate risk differently, which means the potential exists for wide variances in premiums.
Ask about discounts
Providers offer a number of discounts. One of the most lucrative is the home/auto bundle. You can save up to 20 percent on your premiums simply by purchasing your home and car insurance from the same provider. You also can score price breaks of 10 percent or more for having a monitored home security system. Many providers give discounts if no one in the home smokes; that’s because it lowers the fire risk. Discounts vary widely by provider, so find out whether you’re receiving every price break available.
Increase your deductible
Another way to lower your monthly payment is to increase your deductible – the amount you’re responsible for paying when you file a claim. Be sure, however, to keep the deductible at an amount you can afford. Exercise great caution if you take this step.
The best advice? Monitor your mortgage payment and all its components. You can fight some increases, and you should.
- How to Lower Your Property Taxes
- 11 Things You Should Know About Homeowner’s Insurance
- Own a Home? See Your Tax Breaks
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.