Mortgage Payment Composition and Property Taxes

Some of this may be basic information, even for the first time home buyer. But hopefully you'll gain a little insight into how your monthly mortgage payment is derived and how to estimate your property taxes in Florida.

There are four main factors that make up the mortgage payment: Principle, Interest, Taxes and Insurance. There are others, such as Private Mortgage Insurance, FHA Monthly Funding fee, ect but we'll focus on the norm.

NOTE: There are many great reasons to own your own home or investment property. One of them, is the tax benefits. Private Mortgage Insurance (PMI) is one of those payments that has NO tax implication. For the conventional mortgage program, you will pay PMI if you have less than 20% equity in your home. There are a few loan programs available that do not require PMI which affords you the ability to finance up to 100% of the purchase price without paying PMI.

Warning: Private mortgage insurance protects the lender? not you. If you fall behind on your payments, PMI will not protect you and you can lose your home through foreclosure.

Back to the mortgage payment:

PRINCIPLE - The amount deducted each month from the base loan amount. For instance, if you purchase a $300,000 home and $50 goes towards your principle in a given month, your loan balance will be $299,950 after the payment is made that particular month. The Principle amount you pay each month increases.

INTEREST - When you borrow money from a lender, they will charge you the prevailing interest rate. The interest you pay is based on how much principle remains on your loan. The interest portion of your payment decrease each month proportionally to the increase in your principle increase. Essentially, the amount you pay in principle and interest each and every month will always equal the same dollar amount each month.

NOTE: For fixed rate mortgages, the TOTAL amount of your principle and interest will never change throughout the life of the loan. The interest portion of your payment decrease each month proportionally to the increase in your principle payment increase.

TAXES - The county tax portion of your mortgage payment may fluctuate year to year. If you purchase a home at the beginning or end of a given year your taxes will be based on the same amount the prior owner paid that year. Taxes are paid to the county in the rears and are normally paid every November to obtain maximum discount.

• November payments are discounted four percent (FYI, if your mortgage company is paying your annual taxes, they are required by law to pay in November).
• December payments are discounted three percent
• January payments are discounted two percent
• February payments are discounted one percent
• March payments receive no discount and the gross amount is due by close of business on March 31, 2017. Any payment made April 1 and after is considered delinquent and will be assessed a three percent penalty.

The next year after you purchase your home, your taxes will probably increase (since previously they were based on what the seller of your home was paying). Then each year after that, they may increase or decrease based on the county's budget and assigned millage rate.

If the home you purchase is your primary home, you will probably designate that home as your "Homestead". There are may great reasons to homestead your property, but in this context, homesteaded properties are protected under the "Save our Florida Homes" program. That program stipulates that the county can not increase the "assessed value" of your home more than 3% per year (3% cap).

For non-homestead properties, the cap is 10%.

As an example, if say, you purchase a $300,000 home that the previous owner purchase five years ago for $200,000, their taxes will be bases on some figure right around $200,000. January 1st of the year after you purchase your home your taxes will be based on a formula centered on that $300,000 purchase price.

Here is the formula:

Purchase Price: $300,000
County Assessed Value: $300,000*80% = $240,000
Minus Homestead Exemption of $50,000 Leaves you with a taxable value of: $190,000
Multiply taxable value by the county/city millage rate to get Annual Tax:

In Escambia County, as a rule of thumb while estimating, I normally use a millage rate of 14.3268 (or .0143268 as a decimal).

NOTE: The millage rate will vary in each county.

In this example: $190,000*.0143268= $2722 in annual taxes

Divide that number by 12 to get your monthly tax amount applied to your mortgage. In this case: $227 .

INSURANCE: To accurately determine what your annual homeowner's insurance cost will be, I highly suggest contacting your insurance company prior to submitting an offer on your home or investment property. These days, this figure could vary significantly from company to company and area to area. What year the home was built, what wind mitigating improvements are on the house, is the home in a flood zone are all factors that will affect the cost of insurance. It certainly pays to shop around.

Divide that annual insurance bill by 12 to determine your monthly amount due for insurance each month.

Another thing to keep in mind, unless you pay cash for your home, chances are your monthly insurance and tax payment will be collected by your lender each month and deposited into your "escrow" account. Then each year (November for taxes and the anniversary month of your home purchase for insurance) your mortgage company will pay your tax and insurance bills to the appropriate company.

A good website to estimate how much your principle and interest payment will be is Karl's Mortgage. That said your mortgage lender is always the most accurate source.

Obviously books have been written on the information above. This was only intended to give you a overview. When you're ready, we can sit down and discuss details of any questions you may have. Or just drop me an email or give me a call. I'd be glad to walk you through it.

I hope this helps....Please let me know how I can assist you. Remember I’ll represent you, always look out for your best interests, and always provide you with the information you need to make knowledgeable decisions.