A Fixed-rate Mortgage Doesn't Mean A Fixed House Payment

Many new home buyers think that obtaining a fixed-rate mortgage will keep their monthly house payment the same year after year. Unfortunately, this is an untrue assumption. As I stated in my blog Housing Payment: Not Just A Mortgage, there are other variables that make up a house payment, along with your mortgage.

Here are a few facts about your monthly house payment that you should be aware of:

First of all, your mortgage is the main component, but certainly not the only changeable factor in your house payment equation. Just because you have a fixed-rate loan, doesn't mean that your house payment won't change on you. With a fixed-rate mortgage, only the loan rate and the required principal and interest payment are fixed. You need to keep in mind, your homeowners insurance and property taxes will increase every year.

Property Taxes
New homeowners can be in for a surprise if they overlook the cost of property taxes. Hiring a real estate buyer's agent can be very helpful in this area, because a professional buyer's agent can show you homes in specific locales where the tax rate is lower.

As you figure your monthly payments, make sure you also add what the monthly tax assessment is likely going to be, on the amount you paid - the local tax authority will raise it the following year.

Don't be surprised when your taxes go up considerably, the second year that you occupy your new home. If the lender hasn't set aside enough in escrow, due to working from the previous year's assessment (it won't reflect the new price you just paid which resets the assessment), you will be billed the difference until the year's taxes are caught up.

So you won't be caught off guard (short), calculate what you think you'll owe in taxes for the rest of the year and include it in your mortgage payment under additional escrow.

Homeowners Insurance
Homeowners are susceptible to annual changes in insurance premium rates. When policies renew, you may be told that coverage for some items, that were previously included, are now optional, and can only include them at a higher rate or with a separate policy rider (mold coverage for example).

An experienced real estate buyer's agent can help you with the following information about your homeowners insurance.

A good agent -

1. Is aware of property tax laws for your city and county as well as current rates and regulations.
2. Knows the cap on your areas' tax rate increases and can inform you about the maximum possible increases you will face for the next few years.
3. Is aware of insurance issues that may affect you in your state and can suggest alternative sources in case your insurer won't insure you.
4. Will be informed about which companies are insuring in your area and which are not writing homeowner policies.
5. Will remind you that the PITI (principal, interest, taxes, insurance) you calculated is based on what the current seller is paying on taxes this year (the new tax assessment will be based on the sales price that you paid for the house).

As you can see, obtaining a fixed-rate mortgage on your new home, doesn't lock in the cost your monthly house payment each year. Because of annual increases in homeowners insurance and property taxes, anticipate ongoing changes in your PITI payment each year.