As you prepare to take out a new home loan for a purchase or a refinance, you need to crunch numbers and to determine affordability. However, you cannot only look at the present when you review affordability. This is because your mortgage payment could increase for several reasons in the years ahead. When you know what those reasons are, you can better determine what your comfort level is before you take out a new loan.
For most homeowners, a mortgage payment is comprised of a principal and interest payment as well as escrow payments for property taxes and insurance. Each of these components can adjust over time in various scenarios. Property taxes and insurance premiums may increase every year or two, so you should plan ahead for at least a modest increase in your housing payment annually to account for this. Keep in mind that you are still responsible for the rising cost of taxes and insurance even if you have not established escrow accounts for them.
The principal and interest components of your mortgage payment can also increase over time. Generally, if you set up a fixed-rate mortgage, this block of your housing expense will not change. However, an interest-only loan will eventually convert or otherwise will need to be refinanced. When principal and interest become due, the monthly housing expense will skyrocket. If you set up an adjustable-rate mortgage, your interest charges could increase or decrease. Adjustable-rate mortgages are established with upper and lower caps on the rate adjustment, and this can give you some level of confidence about how much the payment could rise and how quickly this could occur.
Our lending team at MortgageDepot is available to answer your questions about your loan options so that you can set up a loan that is affordable for you today and down the road. To learn more about your options, contact MortgageDepot today.
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