Components of a monthly house payment

Calculating your monthly house payment

If you are a first time home buyer, you might already expect that when you pay your monthly mortgage payment, you’re paying for more than just your house. To put things simply, you’re paying for a combination of the money you borrowed, plus the interest, taxes, and insurance. These 4 components are commonly referred to as PITI. Let us break down PITI for you.

Principal

The principal is the amount of money you actually borrowed in the form of the mortgage. If your mortgage is $100,000, then you would have to pay back the $100,000 to the lender. (Plus interest of course)

Interest

The interest is the amount of money that the lender charges you for borrowing your mortgage. This is usually charged as an annual percentage. The higher the interest rate, the higher the mortgage payments.

Taxes

Property taxes can vary depending on where you live.  Real estate taxes are assessed by governmental agencies and are used to fund local public services. The lender can collect the tax payments and hold them in escrow until the taxes are due. Calculate your property tax here http://www.ehow.com/how_2163954_calculate-property-tax.html

Insurance

There are a few types of insurance that can be included in your mortgage payment. There is homeowner’s insurance. Homeowner’s insurance is required by the lender in order to receive your mortgage. This is to protect the home in case of damage caused by unforeseen circumstances, such as a fire, or a natural disaster.

A second type of insurance is PMI. It is mandatory for homeowners who purchase a home with a down payment of less than 20% of the home’s cost. This insurance protects the lender in the even the borrower is unable to repay the loan. Once the borrower has at least 20% equity in the home, the PMI coverage can be dropped.

 

 

Use this tool to help you calculate your monthly payment!

 

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