Mortgage Payment

Team Whitney and our preferred lenders educate our Buyers in the South Bay area in California on the different parts of a monthly mortgage payment, including principal, interest, property taxes, homeowners insurance, and mortgage insurance or a mortgage insurance premium.

Your monthly mortgage payment will consist of 4 or 5 different items.  The first two items for a mortgage payment are principal and interest.  The third item is property taxes.  For some loans, you have the option of paying your property taxes monthly with your loan payment, or you can pay them twice per year.  In Los Angeles County, we usually estimate your property tax amount due every year to be about 1.25% of your purchase price.  For example, if you purchase a $750,000 property, the total estimated property tax due for the year would be $9,375, which breaks down to $781.25 per month.  Most Buyers opt to pay their property taxes monthly, so they are not hit with two large payments for them during the year.  Some cities in Los Angeles County have higher property tax rates than 1.25%, so it is important to hire a real estate team who is familiar with the local property taxes.  The fourth item is property insurance.  Many times, you can receive discounts if you use the same company for your property insurance policy as you do for your auto insurance policy.

The 5th item on many mortgages is what is called MI or mortgage insurance for conventional loans, and it is called MIP or mortgage insurance premium for FHA loans.  Many of our clients get confused, thinking these terms are the same as homeowner’s property insurance, and they are not the same.  MI and MIP are used for lower down payment Buyers to protect their lenders against potential defaults on loans.    

Let’s start with mortgage insurance or MI for conventional loans.  If you have less than a 20% down payment, this will be owed for your conventional loan.  You can either pay the mortgage insurance monthly as a part of your mortgage payment, or you can buy out the mortgage insurance up front, eliminating it from your monthly payments.  It is important to select a real estate team with strong negotiating skills, as our team has been able to negotiate closing cost credits from Sellers before to pay for the upfront mortgage insurance cost buyout, saving our Buyers thousands of dollars in upfront costs or the monthly mortgage insurance payments.  If you choose the monthly option, you should be able to remove the MI from your monthly payment once you can prove you have 20% equity in your property.  Lenders have different criteria on this 20% equity stipulation.  Some will allow you to obtain an appraisal to prove your property is worth at least 20% more than your current loan amount, and others will require for you to pay the loan balance down by 20% in order to remove the monthly MI payment.       

If you are using an FHA loan, the mortgage insurance premium or MIP will stay on your payment for the life of the loan in almost all cases.  There are a few FHA products where it can be removed years later if you have a substantial down payment for the initial property purchase.  If you need to obtain an FHA product, and you are concerned about this additional cost monthly for a 30-year loan, you can always refinance in the future (as long as rates are better) to a conventional product to remove the monthly MIP.  

For any further questions, please contact Danielle Whitney Moore with Team Whitney (Keller Williams Realty L.A. Harbor) at (310) 987-9103.