A mortgage payment is made up of four main components: Principle, Interest, Taxes, and Insurance (PITI).
Principle: The original amount of the loan.
Interest: This is the cost charged for borrowing money. The amount of interest for the month is calculated based on the outstanding principal balance. As the term of the mortgage proceeds, the ratio between the principal and interest amounts shifts in each payment. As the principal balance is paid off, the interest payment goes down.
Taxes: Your property taxes are assessed by the county you live in. Property taxes are typically collected as part of your mortgage payment and put the into an escrow account until the bills are due.
Insurance: Payment for homeowner’s insurance to cover damage to your home or property. Like your taxes, homeowners insurance is often paid for as part of the mortgage payment and put into an escrow account. You pay 1/12th of the annual premium each month and your lender then pays your insurance company once each year.
There are several factors that determine how much your monthly mortgage payment will be. These factors include how much of a down payment you pay and the mortgage program you choose.
If you purchase a home for $250,000 with a 20% down payment, this is what your monthly payments will look like….
Home Price $250,000
20% Down Payment $50,000
Mortgage Term 30-year fixed
Interest Rate 4.5%
Property Taxes 1.2%/year
Homeowners Insurance: $800/year
Principle & Interest = $1,013
Property Taxes = $250
Homeowners Insurance […]