What to expect with a mortgage payment when financing your home.
When financing your new home, the lender (finance company) will require you take on a mortgage consisting of several things to protect their investment.
A Mortgage, can be broken into multiple parts: Principle, Interest, Mortgage Insurance, Taxes and Homeowners Insurance.
Principal – refers to the amount borrowed or the amount still owed on a loan
Interest – the fee that is charged by a lender to borrow the principal
Taxes - the property taxes collected in advance so ensure that this be paid every year
Insurance - A Home Owners Insurance policy is purchased to insure the home against damage
Together these payments are referred to a PITI.
Please note that additional fees can also be included such as mortgage insurance premiums depending on the type of loan program used for the mortgage. Mortgage Insurance - is a policy that protects lenders in case the borrower defaults on the loan
ESCROW - The finance company will collect all these payments together every month as part of the mortgage payment. The additional monies collected will be stored in an escrow account to be held until payment is due. Each year the insurance and tax payments will be evaluated to determine if the amount of money collected needs to be adjusted up or down, to cover these expenses. Any additional money left in the account will be returned to the buyer unless directed to leave in escrow to be applied to the next year’s payments.
Here is an example of how the mortgage payment would breakdown, this can be explored further using a mortgage calculator.
EX: based on the following values
Loan - $200,000; Term - 30 years; Interest – 5%; Insurance - $1500; taxes - $3500
|Principal and Interest:
|Total Monthly Payment:
*For additional information or clarification on mortgage payments, please contact your local lender.