Factoring Your Mortgage Payment

Most people have heard the term mortgage payment but a small percentage of people actually know what is all factored into computing a mortgage payment. Your mortgage payment usually consists of your principle, interest, property taxes and insurance. The bank you is holding you loan will set up an escrow account which is where your mortgage payment will go. The escrow account manager will disburse the funds appropriately. This save time in having to bank the bank, then pay the insurance company then set aside funds for the property taxes every month. The advantage here is that you can make just 1 payment per month that will cover all 4 components. Let’s look at each category separately.

 

Principle. The principle payment goes towards paying down the full balance of what your total loan is. The bigger this number is the better.

 

Interest. The interest part of your interest payment is where the bank makes their money. This is known as the cost of financing. The better interest rate you get the lower the interest part of your mortgage payment is.

 

Property Taxes. At the end of the year you are responsible for paying the property taxes. Your lender will take your total property taxes owed for the year and divide it by 12 which is how much your monthly property taxes come out to. That way at the end of the year after making 12 payments you should have enough money in the escrow account for them to pay the property taxes for you.

 

Insurance. Every homeowner is required to carry homeowners insurance. Especially if you are getting a bank loan. This works the same as the property taxes. As part of your mortgage payment your escrow account will deduct the monthly payment of what your annual premium is and make the payment for you every month.