Residential Mortgage, we’re here to help you understand every area of the
mortgage process. Whether you’re looking at fixed
rate home mortgage options or one of our many loan programs, we’ll
take you step-by-step through the process to make sure you’re clear on all the
commitments you’re making.
One of the
biggest questions we’re asked, particularly by first-time buyers: What makes up
my standard mortgage payment? There are a few important elements to know
understand about your mortgage payment. Let’s review the basic elements you’ll
find, plus a few additional options you may have.
Elements of a Mortgage
mortgage payment has four primary components:
1.Principal: This is the portion of the loan
payment that pays down the loan balance incrementally, before any interest or
other charges. At the start of your mortgage, you’ll be paying less toward
principal and more toward interest. The longer you make mortgage payments, the
more of the payment you’ll see going toward principal and less toward interest.
A good reference is the “amortization schedule” which you can get from your loan
officer, and which will also be included in your closing documents.
2.Interest: This is the portion of the payment
that goes toward interest; the interest is based primarily on the loan amount
and interest rate you agree to during the application process. It’s best
expressed using APR (Annual Percentage Rate), which is a yearly rate that also
includes origination fees and mortgage insurance (more on this in a bit).
3.Insurance: In some cases, depending on your
loan program and the money you put down in advance, you may have to take out
private mortgage insurance. Some buyers also purchase homeowner’s insurance
that is added to the mortgage payment.
4.Taxes: Monthly property taxes can also be
folded into mortgage payments.
Tax and Insurance Options
The last two
items we listed above, insurance and taxes, are not always included in a
mortgage payment. Here are the two options for these payments:
·Escrow: This is the option where you pay
these bills as part of a monthly mortgage payment – your lender will collect an
estimated monthly amount to cover property taxes and insurance, and then hold
it in an escrow account until they are due to the insurance company or the
county tax authority. When the tax or insurance payments are due, your loan
servicer will send them out to ensure they are paid every year.
·Self-Payment: This is an option on some mortgage
loans where you pay the taxes, insurance, etc. directly and the loan servicer
doesn’t collect it in the monthly mortgage payment. The mortgage lender is not
involved in this type of escrow structure.
For more information
on what goes into a mortgage payment, or to learn about any of our home loan
services, speak to the staff at Primary Residential Mortgage today.
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This is not a commitment to lend.
If you're ready to take the next step, work with a team that can provide the personal attention you deserve. Our mortgage company has helped over 200,000 borrowers fulfill their dream of home ownership. We'd love to help you too!