Understanding Your Monthly Mortgage Statements

Understanding Your Monthly Mortgage Statements

Summary: A mortgage is a type of loan used to purchase a home. Monthly mortgage payments primarily consist of four key components: principal, interest, taxes, and insurance. Depending on the loan type, certain homeowners may have mortgage insurance. Each loan type has its own version of mortgage insurance—borrowers may see private mortgage insurance (PMI) for conventional loans and mortgage insurance premium (MIP) for FHA loans on their mortgage payments.

A mortgage is a a document referencing the house as collateral for the repayment of a note. The note is an agreement between the borrower and the mortgage lender to pay the loan amount over a set number of years along with interest. To understand what a mortgage is, its purpose, and options, click here.

Your monthly mortgage payment consists of four key components known as “PITI” (Principal, Interest, Taxes, and Insurance).

  • Principal
    • The loan amount
      • For example: If you bought a home for $250,000 and put $30,000 down, your mortgage will be $220,000—this is your principle.
    • Homeowners contribute more to their principal and less to interest as they go deeper into their loan term.
  • Interest
    • A percentage of the principal mortgage lenders charge for borrowing the money.
    • Interest is paid for the life of the loan.
    • Homeowners pay less interest towards the end of their loan term.
  • Taxes
    • Homeowners can choose to include an escrow account on their monthly mortgage payment to help balance the amount needed for yearly property taxes.
    • Some loan programs require an escrow account.
  • Insurance
    • If homeowners choose to put funds into an escrow account for taxes, they can also choose to escrow their homeowner insurance.
      • Mortgage Insurance
        • Conventional loan holders with less than 20% in home equity will pay Private Mortgage Insurance (PMI).
          • This can be removed once the homeowner reaches 20% – 22% of home equity.
        • Homeowners with FHA loans pay Mortgage Insurance Premium (MIP).

The first mortgage payment is due one full month after your closing date. After the initial payment, payments are due at the beginning of the month and are paid for the prior month’s expenses. If a homeowner has the means, they can make additional payments towards their monthly principal to save thousands throughout the life of the loan.

For more information, chat with us at callhallfirst.com or give us a call at 866-Call-Hall.