What Makes Up A Mortgage Payment?

Buying a home is both an exciting time and a rewarding experience. Whether you want to fire your landlord, grow your family or build your financial independence, a home is the way to get it done. Before you get started, it’s important to understand where your payment is going every month.

Your monthly mortgage payment can seem like one lump sum but it is actually comprised of a few moving parts. These moving parts are known as PITI (principal, interest, taxes, and insurance) and are determined through your loan scenario and the property you are buying.

As you go through your loan consultation with a Summit Funding loan officer, they will cover your potential mortgage payment and build your loan using a combination of your qualifications and maximum comfortable payment. Depending on the property you’ve chosen to make your home, there may be additional expenses such as homeowner’s association fees. Regardless, your mortgage payment will be made up of the following four items:

Principal 

The principal is the original balance of the loan. This part of your payment pays down your mortgage and work towards owning your home free and clear. For example, if your home costs $250,000 and your down payment is $50,000, your staring principal would be $200,000.

Interest

Interest is how mortgage companies make money on the loan you have taken out. Due to the large amounts and longer terms, mortgage interest rates can be a significantly lower percentage than something like a credit card or car loan. Luckily, mortgage insurance can be a tax deduction. Mortgage interest rates constantly change so it is best to speak with a professional to see how they could affect your mortgage payment and if you are eligible to refinance into a lower interest rate.

Taxes

Property taxes are based on the value of your home and determined by a property assessor. They take your home’s value and use the local county tax rate to determine your property tax. Property taxes are paid once a year, but your lender will generally hold the payments for you every month in an escrow account.

Insurance

The final part of the monthly mortgage payment is your insurance. There are two types of insurance that could make up your monthly payment.

Homeowner’s Insurance

Your homeowner’s insurance protects you in the case of hazards such as floods, fires, and tornados. The total amount of insurance you need will depend on your specific situation. Homeowner’s insurance will allow you to sleep well at night knowing your home will be insured when unexpected disasters occur.

Mortgage Insurance

Mortgage insurance protects the lender in case of default, or payments not being made, on the loan. There are several types of mortgage insurance and it is determined by the type of loan you use and how much you put down at purchase. This payment can be avoided in many circumstances, so it is important to speak with a lender to determine how you proceed with mortgage insurance.

Understanding your mortgage payment allows you to make educated and informed decisions. If you are interested in finding out how much you qualify for and how much your mortgage payment would be, click here and talk with one of our experienced loan officers.