Have a mortgage? Here’s how the bill can trip you up, and how to avoid issues

Your monthly house payment is made up of more than just interest and principal. It also includes the monthly shares of your annual property taxes and homeowner’s insurance — and those pieces can be wildcards.

With a PITI mortgage payment (principal, interest, taxes and insurance) on a fixed-rate loan, the “PI” portion won’t change over time. But the “TI” part can and will — a fact that trips up many a borrower.

According to a study from tax and flood service provider Lereta, 68% of all homeowners saw their mortgage payment rise over the past two years because of higher taxes and insurance, and 55% said they were surprised by the increase.

Per a recent study by Neighbors Bank, 21% of the typical house payment goes to taxes and insurance.

“Housing affordability is not just about home prices,” writes Jake Vehige, president of mortgage lending at Neighbors, in the study’s summary. “Instead, it’s about the structure of the monthly payment and how much of a budget goes toward expenses buyers can’t control after closing.”

While you have no control over local tax rates or insurance markets, Vehige offers some tips for trimming those costs:

Obtain a quote from a local insurance agent before even making an offer on a property. Your eventual cost may differ somewhat, but at least you’ll have a rough idea.

Find out what the seller’s tax bill is. Your taxes will go up or down based on the assessment once the house changes hands, but again, it’s a starting point.

Every year, your lender will review your account and make any necessary changes as your tax and insurance bills increase. To avoid surprises, you should also do your own review: “Borrowers can request or review the breakdown from the servicer,” Vehige writes.

Shop regularly. Insurance premiums can vary significantly between carriers for the same house. “Shopping doesn’t end once a house becomes a home. ... Make it a habit to compare year-over-year pricing,” writes Vehige.

Familiarize yourself with the local tax appeal process. That way, if you believe the assessed value is higher than your home’s fair market value — or just mathematically incorrect — you’ll be ready to appeal. Most jurisdictions limit the time frame during which you can file any objections.

Cost of new homes

Homebuyers should not ignore newly built houses: On the median, new houses are now less expensive than existing ones. That’s not always the case.

From 2010 to 2019, new houses were more expensive, with an average difference of $66,000, the National Association of Home Builders reports. But beginning in 2020, the gap narrowed, and in the second quarter of 2024, the relationship reversed.

Since then, existing home prices have exceeded those of new houses in five of seven quarters. In last year’s fourth quarter, the median price for a new single-family house was $405,300 — $9,600 lower than the median for existing houses.

‘Heavy lift’ of a down payment

Folks in the market for a house expect to put up a whopping $45,000 as a down payment, according to LendingTree. That’s a “heavy lift” for most: the equivalent of more than six months’ income for the median household, LendingTree found.

On the median, would-be borrowers expect to put down 15% of the loan amount. At a typical savings rate of 5% of income, the average buyer would need 10.7 years to save up for that size of down payment.

Is your home free and clear?

Nearly 2 out of every 5 homeowners no longer have a mortgage, according to the latest Census Bureau numbers. Specifically, 39.4% own their places free and clear. In recent years, the share of homeowners without a mortgage has increased in every state and in Washington, D.C.

Rural areas were generally more likely than urban counties to have high rates of mortgage-free homeowners. In Chattahoochee County, Georgia, the share of owners without a mortgage is a whopping 69%!

Your dollar goes this far

Unsurprisingly, your money went much further in the 1950s, according to HistoryFacts.com. A dollar in 1950 had more than 13 times the purchasing power of today’s.

“For instance, the average cost of a brand-new Chevrolet sedan was just $1,450 that year, the equivalent of around $19,416 today when adjusted for inflation,” writes Bennett Kleinman.

The median price for a single-family house was only $7,354 in 1950 — equivalent to $98,474 today. As Kleinman writes, “If only!”

Working from home

China has been offering citizens financial incentives to have more children. But perhaps the country would achieve better results by simply letting more people work from home.

A study of adults ages 20 to 45, in 38 countries, showed that those who work from home at least one day a week have more children, on average, than those who don’t. I’m just sayin’.

Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com