WHAT COMPONENTS MAKE UP YOUR MORTGAGE PAYMENT?

Written By Jennifer Wilson

They’ve simplified your mortgage payment, so you can make one simple payment, as opposed to up to five separate payments. To help you better understand what it entails, we’ll take a look at the four to five components that make up these monthly payments:

1. Principal: This is the amount of money from your mortgage payments that are going to pay off the balance of your loan. The great thing about the principal is that, in general, the amount you owe each month decreases, while the amount your home is worth increases.

2. Interest: This is the amount you pay that doesn’t pay down the balance on your loan. However, it is tax-deductible.

3. Property Taxes

4. Homeowners Insurance

5. Mortgage Insurance (depending on loan type)

Numbers three through five are called Impounds. In the past, the bank would allow you to make only your principal and interest payment to them; you would pay your property taxes, homeowners insurance, and if necessary, your mortgage insurance, separately.

The bank found that most people weren’t able to keep up with so many different bills. To solve this problem, they made things easier: now, all the bills go directly to the bank, which pays the bills on time so there is no issue with foreclosure. In short, they’ve simplified your mortgage payment, so you can make one simple payment, as opposed to up to five separate payments.

If you would like more information about how mortgages work and how those payments are calculated, give me a call. I can direct you to the best person to better understand the process.

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