Getting a new home can be exciting; however, getting a new can also be scary. The first step to conquering any fear is understanding the thing that is worrying you. The components that make up your typical mortgage payment can seem frustrating but today we are going to discuss them in depth, so you can understand the amount that shows on your payment coupon each month.
PITI and How It Impacts Your Mortgage
is an acronym for the main components that make up your mortgage payment. The P stands for principal, while the first I stands for interest. The T means taxes and the second I represents insurance. These four items are used to determine the full total of your monthly mortgage payment. After you know the size and amount of your loan, the lender will use your PITI to set your monthly house payment.
The principal of your home loan is the actual amount of money that you have borrowed from your lender to cover the cost of your house. For example, if you borrowed $80,000 from the financial institution, then the principle that you owe is $80,000. When you first start making the payments on a 30-year mortgage, the repayment that goes toward your principal is very small. Most of what you are paying every month covers the interest owed; however, as time passes your principal lowers, and your payments become more principal and less interest.
The interest on your mortgage is a percentage rate that your lender charges you for borrowing from them. Various factors help to calculate what your interest rate will be on your mortgage. Generally, home loan rates fluctuate based on your personal financial risk level. Your credit report, the size of your down payment, which loan program you choose, and how high of a loan you need will all affect the level of risk your lender assigns to your mortgage.
A portion of your monthly house bill often encompasses your real estate taxes. These taxes are used for funding different public services. Your taxes are calculated based upon the total value of your property. The amount that you owe is usually divided into small increments throughout the year. Once you have sent in your mortgage payment, your lender will set aside the tax portion of the bill in a particular place called an escrow account. When the taxes on your property are due, your financial institution transfers the proper amount to the government agencies needing payment.
This portion of your monthly house bill includes your homeowner’s insurance. Your mortgage servicer can collect this portion. Home insurance is vital to help protect the house and property against many types of damages and disasters. The money you pay for insurance is also held in the escrow accounts. The lender sends money to the insurance agency when it is due. Additionally, the type of loan you have and the amount you were able to pay for your down payment will determine if the lender requires you to pay Private Mortgage Insurance (otherwise known as PMI).
What is PMI, and Do I Have to Pay for It?
is an amount that you pay towards your home loan due to the type of loan you have or the dollar value that you paid for your down payment. Generally, most lenders prefer you pay 20% or more for your initial down payment; however, it is not a requirement anymore. For those people who cannot afford the full 20% down, lenders will accept less if the borrower agrees to pay into a fund that helps the mortgage servicer if the borrower is not able to pay the loan as agreed. That fund is the PMI. Unfortunately, private mortgage insurance does increase the amount you will pay each month for a home payment.
All Those Factors Combined
Your principal, the interest on the home, your taxes, and the PMI are all included in the figure for your monthly mortgage payment. This bill can fluctuate depending on the type of insurance that you have and what your taxes and current insurance rates are.
Nationwide Home Loans in Fort Lauderdale
Here at , we strive to not only offer the best mortgage rates in the Fort Lauderdale area but also to have the most knowledgeable and experienced team. Our staff can assist you with getting the home loan that is best for you and your needs as well as explain where each of your dollars is being used. We want to provide you with not only the means to buy the house you have always wanted but to also ensure that you understand and are comfortable with each step of getting your new home.