What is a Mortgage Payment?
Before we discuss mortgage payment, let’s talk about Mortgage. A mortgage is designed to help you purchase a house with a long-term loan. In paying back the principal, you will have to pay interest to the lender.
Meanwhile, the collateral is the home and land around it. But if you are interested in buying a house, then you should understand more than the general terms. This also applies to business, which refers to fixed costs and shutdown points.
To determine your monthly mortgage the major factor to consider is the term of the loan and the size. The size is how much you have collected in purchasing the house while the term is the duration of time you are given to pay back. Meanwhile, the longer the term the lower you pay monthly.
This is why the most popular mortgage is 30 years. However, ones you know the amount of loan you need to get your new home, then a mortgage calculator will be an easy way for you to make a comparison between your mortgage types and various lenders.
Mortgage Payment Components
In the calculation of a mortgage payment, there are four different factors to consider. Which are the principal, interest, taxes, and insurance (PITI) To explain the factors of mortgage payment components we will be using an example of $100,000
A part of every mortgage payment is dedicated to paying back the principal balance. Loans are designed so that the initial principal is being paid back to the lender, as borrower stats paying low and later increases with each mortgage payment.
In the first years of payments, it applies more of interest than principal, while at the final years of payments its the other way round (principal than interest).
If our mortgage is $100,000, then our principal is $100,000.
The interest is the percentage given to the lender for making a risk of loaning you money. To determine the interest of a mortgage it mostly depends on the size of the mortgage payment. The higher the interest rate the higher the mortgage.
However, the size of money you can borrow reduces with a high-interest rate, while a lower interest rate increases it. still using $100,000 for example, if our interest rate for it is 6%, now adding up the principal and interest for a monthly payment on a mortgage of 30 years.
That will sum up to be $599.9 – $500 interest adding the principal of $99.5. Using the same loan of $100,000 with a 9% interest rate the monthly payment will be $804.62,
Taxes from real estate or property are used by the government agencies in funding public projects like police forces, schools, fire departments, etc. The government calculates taxes yearly.
But you can make the payment monthly. The amount for taxes is calculated with the division of the total number of mortgage payments you make in a year. These are collected by the lender and held until the taxes have to be paid.
Just like the real estate or property taxes, insurance payments are gotten from the mortgage payment, held, and kept until the bill is due. Meanwhile, there are some comparisons that are made in processing to the level of premium insurance.
In a mortgage, there are two types of insurance coverage. One of the insurance coverage is property insurance. Which covers the home and contents from the risk of theft, fire, and other disasters.
While the second is PMI, which is compulsory for people who are buying houses with a payment of less than 20% of the cost of the house. The PMI protects the lender in case the borrower is unable to pay the full loan.
The Amortization Table.
A mortgage amortization table or schedule help in providing detailed information on every payment to be made and the part dedicated to each component of PITI.
Like earlier said, the first years for paying a mortgage are more of interest payment. While the final years are more of the principal.
When Mortgage Payment Start.
To pay for the mortgage, the first payment to be made expires when the full month of the last day of the month of purchasing the home closes.
Unlike house rent, that expires on the first day of the month. Mortgage payments are made in arrears, you pay on the first month of the previous month it due.