What am I truly paying in my Mortgage Payment?

Many times in the process of the loan application we forget to answer the most basic questions, and many times the simple answer’s help to understand the process a little better.  For example:  Mortgage payment?  How is the payment separated out, when is it due, and how do they decide who has to have mortgage insurance and who doesn’t.  Below are just a few interesting facts about the “mortgage payment”.
mortgage payment property guidingMortgage payments are typically due by the fifth of each month and considered late if not received by the 15th of the month.  Mortgage payments are comprised of several components: principal, interest, taxes, and insurance.  Often these components are referred to by the acronym PITI.
Principal– Principal is the amount of money you borrowed.  In a mortgage loan the money borrowed is “amortized” or paid back incrementally over time. With each mortgage payment that you make, a portion of your payment is applied towards reducing your principal and another portion of your payment is applied towards paying the interest on the loan.
Interest- Interest is the increment of your payment that the lender receives in exchange for loaning you the money.  Expressed as a percentage, the higher the interest rate, the higher your payment will be.  Mortgage interest is currently tax deductible, excepting certain caps for high income borrowers.
Taxes- In most parts of the US, property taxes are charged by the state, county, or local jurisdiction.  Additional taxes could also include: school taxes, utility taxes, or other special area taxes. It is typical for taxes to be incrementally paid with each mortgage payment into an escrow account and then forwarded to the appropriate governmental body by the lender or servicer of your loan.
Insurance- Lenders require property insurance to be maintained on homes they finance to protect their interests against fire and other potential losses.  Additionally, mortgage insurance may be required on a particular loan to protect the lender in the event of your default.  Incremental insurance charges are collected monthly and forwarded to the insurance companies when due.
Mortgage insurance can be cancelled once your equity in the home reaches 20%, though it isn’t cancelled automatically. While you are supposed to be notified when mortgage insurance is no longer required, you would be wise to check with your lender directly if you believe you are close to 20% equity. (some information on the web under “Understanding the Mortgage Payment”)
If you have any questions about your current payment, or would like to see if know is the right time for you to refinance feel free to contact me KaraHolleran@hotmail.com or 239-246-6000.

Posted on November 26, 2012, in Finance and tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink. Leave a comment.

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