A mortgage is a loan used to buy a house or property. It is a secured loan. The lender and borrower agree that the collateral is the home. If you fail to repay the loan, the lender may take the home as collateral.
Although mortgages are usually used to finance home purchases, they can also be used for other types of land and property purchases. Refinance is a mortgage that allows you to borrow money against your home’s value. Find out more about mortgages, how they work, what is included in mortgage payments, the various types of mortgage programs, and how you can apply.
How to Break Down Your Monthly Mortgage Payment
When deciding whether you can afford a monthly payment on your mortgage, you should consider the following four components: principal, interest taxes, taxes, and insurance. These components are often referred to as “PITI.” In most cases, they are combined into one monthly mortgage company McAllen TX.
Principal
The principal is the amount of the loan you borrowed to buy the house. The principal balance is paid down with a portion of every monthly mortgage payment. The principal balance of the mortgage payment is less immediately after you take out the loan. Therefore, you might not see a decrease in principal balance over the first few years. Making extra monthly payments towards your principal can reduce the length of your mortgage and help you save interest.
Interest
The interest you pay each month to the lender is a large part of your monthly mortgage payment. This is your “cost of borrowing.” The majority of your monthly mortgage payment will go toward interest during the first years of your mortgage’s repayment schedule. The more you pay in interest, the higher your mortgage interest rate.
Taxes
When you own a house, property taxes must be paid. They are often included in your monthly mortgage payment. Most homeowners pay a small amount each month to their mortgage payment. This money goes into an escrow account that the lender has set aside for taxes. When the bill is due, the lender will pay it from the escrow account.
Insurance
You may also pay home lender as an additional cost. This is usually rolled into your monthly mortgage payments. As with property taxes, the lender also pays insurance companies from the escrow.
If you do not put down at least 20% when you buy the house, you may be required to purchase private mortgage insurance (PMI). If you get an FHA loan, you will have to pay a mortgage insurance premium.
