# 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.

Sophiesmama
January 27, 2011 at 2:59 am

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

frontstca
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

Judy
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%.

glenn
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.

Kat
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.

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!