What’s in a Mortgage Payment?

The Allen Williams Realty Group believes that knowing your estimated mortgage payment BEFORE you begin your home search is a smart first step. A mortgage calculator will help you sidestep any “fuzzy math.” It’s always fun to dream, but it’s even more fun when the dream fits into your budget. They believe that buying smart today will net thousands tomorrow!

What’s in a Mortgage Payment?

You may be surprised to know that your mortgage payment doesn’t just pay your mortgage — other components are wrapped in as well.

PITI – the term for Principal, Interest, Taxes and Insurance – is what makes up your total monthly mortgage payment.

Principal and interest payment (P&I) – This portion of your payment goes toward amortizing (paying off) the loan amount (principal), along with the interest over the term of the loan.

Property taxes (T) – Real estate taxes are escrowed by most lenders, as unpaid and past due taxes must be paid before any mortgage amount. The taxes go toward county expenses.

Homeowner’s insurance premium (I) – Homeowner’s insurance covers the home in the event that a loss occurs. Although you can select the insurance provider, you must pay the policy before closing on the home. The lender holds the insurance portion of your monthly mortgage payment for an entire year, then pays the bill for you. Keep in mind that you’ll be paying this year for next year’s policy.

Private Mortgage Insurance (MIP or PMI) – This insurance covers the lender in the event that you default on your loan and the property is foreclosed on. MIP/PMI applies to properties with a loan-to-value ratio (LTV) of over 80%. So, if you make a down payment of 20% or more, PMI is not required.

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