Your Mortgage Payment: What Is It Made Up Of?

There are multiple factors that go into how much your mortgage payment is each month - and only a couple of them are interest rate and loan amount. Take for example this excerpt from a Good Faith Estimate for an FHA loan that recently came across my desk.

The principal and interest are calculated based on your loan amount and whatever the interest rate is. The Hazard Insurance is based on whatever you are paying your insurance company. The taxes are the monthly amount that will be escrowed so that your lender can pay your property taxes for you when they are due. The Mortgage Insurance is the monthly amount that you will pay to FHA.

Would you like to save money on your mortgage payment each month? Of course you would. Can you “negotiate” with FHA the amount of Mortgage Insurance that you will pay? No. Can you negotiate with your local government on the amount of property taxes that you pay? Kind of - there is an appeals process and you may or may not win. It also takes time, usually quite a bit of time to get an answer.

One of the quickest, easiest ways to save money on your mortgage each month is to check the homeowners insurance rates that you are paying and make sure that they are “in the ballpark” of what other companies are charging.

Once you verify if what you are paying is in the same ballpark as to what you could get at other companies - there are still a few things that are possible to do to save even more money on your insurance bill including:

• Install an Alarm System
• Install System Monitoring (such as plumbing detection systems)
• Invest in Disaster Preparedness (such having an emergency power generator if you live in a place where earthquakes are common or a roof with extra wind protection if you live where hurricanes happen)

Some insurance companies even give discounts for things such as living in a gated community with a security guard!

The point is - that while it is important to focus on getting the best interest rate with the lowest possible fee structure when getting mortgage quotes there are also other things that you can do to save money each month on your mortgage.

You might be surprised how much money I see people save just by shopping around a little bit.

March 2, 2009