What’s the additional cost that needs to be figured into a home loan other than then actual payment?

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The mortgage company said they would give me a 7% interest rate, not bad considering my credit is shot. So I punch that into a amortization calculator and get a payment on a $ 75,000 house at $ 498.98. Yet, the broker said my payment would be about $ 705. What else are they figuring in to the payment?
What formula or numbers are the lenders using to give me the rough number? How can I figure the taxes, insurance, etc cost myself so I can get a better number on paper to build my budget around?

I went to some mortgage calculator website and put those numbers.

Loan amount: $ 100,000
Interest rate: 5.20 %
Amortization: 25

Monthly mortgage payment will be: $ 593.04
Yearly: $ 7116.48

What really confused me was when I calculated the total payment after 25 years.

7116.48 X 25 = $ 177,912

The question is, how come only %5.20 interest rate will end up paying about 77K over the original 100k price of the property? Or is it how things work out for mortgages? Sorry I’m from 3rd world countries and kinda don’t get things right over there.

  1. Reply
    January 27, 2011 at 2:59 am

    Monthly amount due for property taxes, homeowner’s insurance, and mortgage insurance if less than 20% downpayment.

  2. Reply
    January 27, 2011 at 3:12 am

    well if you have a bad credit rating they usually up the interest charges, they could be including property taxes paid along with the mortgage payment and the amount of time amatiorization 5 years 10 yrs 20 years etc check it out and get a clear picture from the broker he is supposed to be upfrint with you so get a breakdowm as to the payments

  3. Reply
    January 27, 2011 at 3:44 am

    The calculator showd you principal and interest. The payment also includes 1/12 of the annual real estate taxes and insurance each month, and also something called PMI if your down payment is less than 20%.

  4. Reply
    January 27, 2011 at 4:35 am

    Like they say the extra is the property taxes and the homeowners insurance. The actual figure for property taxes will depend on which house you buy. If you already have it picked out you can look up the real figure and the lender can actually help you do that.

    The homeowners insurance depends on your credit (believe it or not) and the size, age, condition and location of the house. It also depends on what kind of coverage you want, how large a deduct able you want, and if you also have your car insurance thru the same company. Shop around and ask a few companies for quotes.

    But your lender is probably just guessing right now and one guess might be as good as another.

  5. Reply
    January 27, 2011 at 5:11 am

    Welcome to banks making money. Its compound interest. Interst is calculated after every payment not on the loan amout as a whole. For the first repayment you pay interest on the whole loan amout the second repayment you only pay interest on what remains after the first payment and so on… So the more you pay off to start with, the less interest you pay in total.

  6. Reply
    v b
    January 27, 2011 at 5:35 am

    Month 1. $ 100,000 * .052 * 1/12th = $ 433.33 interest
    Month 1 payment 593.04 – 433.33 = 159.71 towards principal.

    Month 2. $ 99841 * .052 * 1/12th = $ 432.64 interest
    Month 2 payment 593.04 – 432.64 = 160.40 towards principal.

    So…year one is roughly $ 160/month principal.
    $ 1920 for year.

    Year 2 starts $ 425 interest. $ 168 principal.
    $ 2016 for year.

    You don’t pay more than half in principal until 2/3rds of the way through the loan….

    Even the “short cut” method–on average, you’d think you’d owe 1/2 of the total. $ 50,000 * .052 * 25 = $ 65,000!

  7. Reply
    jack a
    January 27, 2011 at 5:49 am

    Mortgages work on simple interest. This means that all the interest you will pay is precalculated, and the total amount (177k and change) is then amortized (or made into equal payments) into a 25 year term. Your math is correct. Believe it or not, if the deal you are showing her is true, you are getting a fantastic deal. The interest rate you recieve is based on many factors. You loan amount, credit and job will have a lot to do with your interest rate. Also be aware that your rate is also very dependant on how much you pay in closing costs. A 5.2% rate is well under par, meaning you will likely have to pay a couple points as well as the lender’s regular costs. On this loan amount, i would be surprised if your costs are less than 5k to get the rate you are stating, so be aware, you will be paying this much to get the loan. The best way to save yourself a lot in interest is to pay the loan off as soon as possible. If you can make at least one extra mortgage payment per year, you will likely shave off 3 to 5 years on the mortgage, meaning saving yourself tens of thousands in interest.

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