Mortgage Payment Amount How is It Calculated?

There are a number of factors that determine how much you monthly mortgage payment will be. These factors include: the amount you borrow, the duration of the loan, the amount of your down payment, points you paid, the closing costs you paid, and the state of your credit.

Your loan amount is the main factor involved in determining the repayment amount. Obviously the more you borrow, the higher your payment will be; however, the amount you borrow could impact the interest rate you pay. If you borrow above the conforming loan limit regulated by the government you will pay a premium interest rate to the lender.

The duration of the loan also affects the payment amount. Mortgages with shorter term lengths come with lower interest rates. The lower the duration of the mortgage the less risk there is for the lender. Mortgages with longer term lengths come with higher interest rates due to increased risk.

The down payment you make affects your mortgage payment amount by reducing the principal balance and affecting the interest rate. Points paid at closing also reduce the interest rate; points are pre-paid interest paid at closing in exchange for a lower interest rate. Other factors that affect the monthly payment include the closing costs. If you take a no closing cost deal you are actually financing the closing costs in the form of a higher interest rate. Higher interest rates translate to higher monthly payments.

The state of your credit will affect your payment amount by influencing the interest rate you receive. Your credit history along with your debt to income ratio is used by the lender to determine the interest rate you will qualify for. If you have good credit you will receive a better interest rate and a lower monthly payment.

To learn more about factors that affect your mortgage and how to save money, sign up for a free mortgage guidebook.

Louie Latour has twenty years of experience in the mortgage industry as a mortgage broker. He is the owner of Mortgages Refinance Advisor, a mortgage help site devoted to saving homeowners money with a free guidebook Mortgage Refinance: What You Need to Know.

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