Every month you have hundreds, if not thousands of dollars that come out of your bank account for your mortgage. You know that the majority of that money is for paying back the loan which got you your house. However, where does the rest of that money go?
It’s a good idea to learn as much as you can about your mortgage and the monthly payments, since many components make up a mortgage. When you know this, it can help you budget for your payments and everything else around your house.
There are four components which are referred to as PITI. Here are the elements that make up your monthly mortgage payment.
The first and most obvious component is the loan itself, which is the principal. That is the money you borrowed from a bank or lender to pay for the property. Without this loan, you would have had to pay with cash up front, which is not something many people can do.
If you take your total mortgage before any additional fees are attached to it, you can divide that number by the number of months it will take to pay it to get your monthly payment.
Next, is the interest. There is interest added to basically any loan you take, including the use of your credit cards. The interest is what the lender charges you for borrowing their money. Every month that you have an outstanding balance, a certain percentage of that balance is added as the interest.
The interest rate of a mortgage is what can hurt a lot of home buyers. Although when looking at the principal the mortgage may look affordable. However, once you factor in the interest rate, it could put the mortgage outside of your price range. That is why many people want to pay off their mortgage as soon as possible.
Taxes are added to your mortgage on top of the interest. There will be a property tax based on the value of your home, which is due every year. Depending on where you live, that will factor into the price of your taxes. If you live in Texas, you would then want to use a mortgage calculator Texas to give you an accurate number for your payment.
It’s easy to forget about the property tax when looking at a mortgage. Just like with the interest rates, the additional taxes can make an affordable house too expensive to buy.
The last component of your mortgage payment is the insurance. Not every mortgage will require the same insurance, so this number could vary quite drastically.
The insurance is there to cover the loss of your property due to a particular hazard. Without insurance, if a fire broke out and destroyed your home, you wouldn’t have anything to back you up and help cover the costs. Although insurance is another added monthly expense, it is worthwhile to invest in.
Your mortgage payment is more than the loan itself. You have the principal, interest, taxes, and insurance to consider as well. All of these are worth looking at when you’re buying a house, not just the price of the property.