P-I-T-I
When the time comes to buy a house you probably will do a lot of research on how much money you can afford to spend each month for your mortgage payment. Representatives from mortgage loan companies can usually do a great job of giving you an estimate of what your payment will be and you can also use one of the many mortgage calculators available online through lenders and consumer websites. These can be great tools to use when you’re trying to plan for the amount of money you want to borrow to buy a house.
There is one important question that you need to ask when obtaining an estimate of how much your mortgage payment will be: Does this payment include everything I’ll have to pay every month?
A mortgage payment is made up of at least four parts:
Principal: The principal balance of the mortgage is how much you actually owe on the loan without the interest or fees. It is the amount of money you finance to purchase the home in addition to anything you roll into the mortgage loan, such as closing costs, funding fees or points.
Interest: The amount of interest you pay over the life of the loan depends on several factors including the initial interest rate of the loan as well as any additional principal payments you make. In the beginning stages of a mortgage loan you usually pay more toward insurance than principal.
Taxes: Real estate taxes can come from the state, county or the city in which you live. Some programs exclude certain people from paying taxes, such as special programs for disabled veterans and other programs. The amount of taxes you pay varies according to where you live and how much your home is worth according to the tax assessor.
Insurance: Not only is having homeowners insurance important, but it is also required by lenders in order to protect their investment. You might pay this on your own or might have it paid through an escrow account with your lender.
Always consider the full amount of P-I-T-I when estimating your mortgage payment. Keep in mind any other recurring monthly expenses that may go along with your mortgage, such as Private Mortgage Insurance or a piggyback loan. Talk to your lender to find out exactly what your payment will consist of.
March 30th, 2009 at 10:50 am
[…] It doesn’t matter if you settled a small debt with a credit card company or paid off your home mortgage after many years. You should hold on to the documentation sent by the lender that states the debt […]