Before you dive into buying a home, it is important to know what your money is going to each month. Your monthly mortgage payments are commonly referred to as a “PITI” or principal, interest, taxes and insurance. PMI and homeowner’s association dues may also make up a portion of your total payment.
Principal: The original amount of the loan.
Interest: Just like with any other loan, this is the amount that you are charged for borrowing money. The amount of interest for the month is calculated based on the outstanding principal balance as well as the interest rate of your loan. As the term of the mortgage proceeds, the ratio between the principal and interest amounts shifts in each payment.
Taxes: The property assessment collected by your local government. Lenders typically collect a portion of these taxes in every mortgage payment and hold the funds in an account called an esgrow account until they are due.
Insurance: This offers financial protection from risk. Like property taxes, these are typically held in an escrow account and paid on your behalf to the insurance company. There are two main types of insurance that are typically included in your mortgage payment: homeowners insurance and mortgage insurance. Homeowners insurance is required financial protection you must maintain in case your property is damaged by fire, wind, theft or other hazards. Mortgage insurance protects your lender in case you fail to repay your mortgage.
Overall there are several factors that determine how much your monthly mortgage payment will be. Two examples are the amount you pay for a down payment and the mortgage program you choose.
It is important to take all four factors into consideration when determining what house you can afford. Use our mortgage calculator http://firstohiohome.com/home-finance-mortgage-calculators/ […]