What Goes Into a Monthly Mortgage Payment?

With a noticeable shift occurring in the Denver real estate market, it’s more important than ever to understand the ins and outs of getting approved for a mortgage and the associated costs of buying a home.

Rising interest rates, the heavy emphasis on your credit score, down payment and whether to decide to pay mortgage points will all be calculated in determining what your monthly payment will look like. 

So what goes into a monthly mortgage payment?

First and foremost is the actual loan that you’ll secure from a lender which will include the principal and interest, and likely an escrow account covering private mortgage insurance (if there is less than a 20 percent down payment), homeowner’s insurance and property taxes. 

As a result, it’s important to feel comfortable with the loan you’ll be getting and how it will impact your budget and bottom line. 

Amy Ivy with Cherry Creek Mortgage provides answers to some of the common questions homebuyers have about mortgages and how to get a monthly payment that best fits your budget. She discusses mortgage rates, best loan terms, paying mortgage points, down payment options and locking in a rate that can help you achieve a favorable monthly mortgage payment.

How are current mortgage rates having an impact on home buyers?

Amy: Right now, mortgage rates are the proverbial “elephant in the room.”

There is no doubt about it, higher interest rates do mean that the cost of borrowing money is more expensive, and oftentimes can limit the purchasing power of many home buyers. That being said, higher interest rates have taken some people out of the buying pool, allowing for the best opportunity to get into a home that we have seen in a long time. We are experiencing less overall competition and home buyers are now able to negotiate closing costs and purchase price, which is vastly different from the market earlier this year.  In the current Denver area housing market, if you can qualify and manage the higher rates, it could be a real opportunity to purchase a home.

We are experiencing less overall competition and home buyers are now able to negotiate closing costs and purchase price, which is vastly different from the market earlier this year.

Changes in interest rates can have both positive and negative effects on the markets. Central banks often change their target interest rates in response to economic activity: raising rates when the economy is overly strong and lowering rates when the economy is sluggish.

While interest rates are higher than they have been in several years, they are still low historically speaking. Simultaneously, home prices are at historic highs; therefore, the impact of higher rates is more meaningful to many people.

Don’t forget that you aren’t “stuck” with your interest rate forever! You certainly want to make sure you are comfortable with your initial rate and payment but remember, there will likely be an opportunity in the future when we see lower interest rates and buyers will have the chance to refinance into that lower rate.