Standard Components of Mortgage Payments

If you’ve never owned a home before, there might be several different elements of the mortgage and purchase process you have some questions about. From early basics like pre-approval or pre-qualification to closing dates and timing considerations, there’s a lot to learn if you’re going through the steps of a mortgage for the first time.

At Primary Residential Mortgage in Guilford, our team of mortgage pros can help you in all these areas and more. There’s no element of a mortgage too simple, no question too basic for us to assist you with it. One area that many first-timers want a little clarity on for their future planning: What are the standard components that make up a mortgage payment, how will I make these payments, and how can I express my yearly mortgage-related expenses properly?

Elements of Mortgage Payments

There are four standard elements of a normal mortgage payment:

• Principal balance: Part of your monthly payment will go toward the principal balance of the mortgage. This percentage will be lower as you begin your payments, but will rise as you pay off more and more of the loan.
• Interest: This is the rate your lender charges you in exchange for lending you the money. As you move further in your payment process and pay off more and more interest, this percentage will drop while the percentage of your payments that goes to the principal balance will rise.
• Insurance: This will include homeowner’s insurance, plus private mortgage insurance if your lender requires it based on the down payment amount you were able to come up with.
• Taxes: Basic property taxes, expressed monthly.

Taxes and Insurance

The final two sections we listed above, taxes and insurance, can be included in a couple different ways as part of your payments. The options here:

• Escrow: Your lender will tally up all property taxes and insurance costs, estimating a monthly amount you’ll need for these. Each month, this amount will be added to your standard monthly payment and held in an escrow account. When various insurance or tax bills come due, they are paid by your lender out of this account.
• Self-payment: Instead of tacking them on to your monthly payment amount, you pay taxes and insurance directly when they’re due. These are usually not monthly bills, so you’ll need to have a separate fund cycle set up for them.

How Payments Are Made

Mortgage payments are generally billed at the beginning of each month. You’ll be given exact amounts for upcoming payments well in advance, so you have time to prepare and save. You’ll begin making mortgage payments in the form of closing on your home – this means when you move into the home, there will be a one-month delay before you start sending in payments.

APR

We discussed above the various options for paying taxes and insurance, which can sometimes complicate your ability to figure out exactly how much you’re paying yearly based on differing bill cycles. APR, or annual percentage rate, however, refers to a full yearly cost covering principal, interest, insurance and any origination fees – it’s a broad expression of your overall expenses. There are various online calculators out there where you can try out different loan amounts and figure out what your payments will be.

For more on the elements of a standard mortgage payment, or to learn more about any of our mortgage loan services, speak to the staff at Primary Residential Mortgage today.