It’s always smart to know exactly where your money is going, and if you’re looking to buy a home in Grand Rapids, Michigan or have just finalized on your new home, you may be wondering about what’s included in you mortgage payment. Each month, your payment goes towards principal, interest, taxes, and insurance.
Principal and Interest
Most people already know that they’re paying for both the principal and interest on a mortgage, but do you know how much of your money goes towards each? In the beginning, most of your check will actually be paying for the interest on your loan, not the principal. The good news is each time you make a payment, more money will be used for the principal. Since your total amount owed shrinks as time goes on, the amount you’re paying for interest also shrinks. By the time you’re on your last few years of your mortgage, almost everything you pay will go towards the principal.
Taxes
This is going to depend on how much your new home is worth and where it’s located. Generally, the more desirable your town or city is, the more you’ll have to pay in property taxes. For instance, someone in San Francisco is probably going to have a higher mill rate than someone in rural Idaho. A mill rate is set so that nicer homes with higher values pay more than homes that don’t have a very high value. How much you pay in taxes can also vary from year to year.
Insurance
Some people insure almost everything they own, and others hate paying for insurance. No matter what your stance is, however, you’re probably going to have to have insurance on your house while you’re making mortgage payments. This is another variable cost. The more your home is worth, the more it will cost to insure, and you might have to pay more if you live in an area that’s susceptible to anything that could harm your home, like fires and floods. Even disasters like earthquakes or man-made problems like theft and vandalism can be taken into account.
Choosing to move to Grand Rapids could be a very good decision, but if you have to take out a mortgage in order to move, make sure to be well-informed and know exactly what’s included in your payment before signing on the dotted line.