dcsimg

The Basics Components of a Mortgage- What You Need to Know

Posted by  on May 03, 2010
 

If you decide to buy a home or a piece of property more than likely you will not be able to afford it outright and will therefore need to borrow money from a financial institution to make the purchase. This is the sole purpose of a mortgage. Most banks will not lend people the entire amount they need to purchase a property, thus it becomes necessary to provide a down payment. A down payment is the amount of money that you have in your own possession that can go toward the purchase of the house. The down payment will reduce the amount of money that you will need to borrow for a mortgage. The larger your down payment is, the lower your monthly mortgage payments will be. In some cases potential homeowners can put down as little as five percent for a down payment. Your financial institution will use a system called a PITI. to determine what your mortgage will be and how much you will be required to pay on a monthly basis. Below are the factors which are involved in the PITI process.

Principal
The principal amount of a mortgage is comparable to any other type of loan. It is the total amount of what you borrowed. To figure out the principal of your loan, simply subtract the amount of your down payment from the final cost of purchasing your house.

Interest
Interest is a part of every loan. The interest you have to pay on your mortgage is dependent upon interest rates set by the bank as well as those set by the federal government for any given time period. Your interest will be determined by looking at the principal of your loan.

Taxes
Paying property taxes is part and parcel of buying real estate. To guarantee that the taxes get paid, a portion of the property taxes is included with your monthly payments. It is either held by a third party until an agreed upon period of time or it is placed in escrow.

Insurance
You need to have insurance on your property for peace of mind for both yourself and the lender. How much insurance you have can influence what your monthly payments are calculated at. For example, seek to get excellent coverage when it comes to theft, fire and acts of nature.

Search for Best Mortgage Rates


X

Get Mortgage Rates by Email

  • Compare mortgage rates offline
  • Get updated rates in your inbox
  • Apply for a mortgage from your email
  • We don't spam

Get Your Rates Emailed Now!

Subscribe To Lending Lowdown
Your information will never be shared
Shoprate User Survey