It is important to find out what is included in MA recurring mortgage payments for budgeting purposes. The acronym PITI is commonly used to remember the items, which are principal, interest, taxes, and insurance. All mortgages do not automatically include all of these. It can differ based on your specific program.
What Is Included In Recurring Mortgage Payments
Paying Down Principal
Principal represents the balance of a mortgage. For a typical loan, a portion of your monthly payment is put towards lowering the balance, however there can be exceptions to this such as interest only loans. In the first several years of payments, only a small portion of the payment will go towards principal, but this improves over time.
Interest is the fee billed by mortgage companies for use of their money. The interest rate is normally a yearly rate but billed in monthly increments calculated on the balance of the loan. Based on the type of loan, the interest rate may stay the same for the full life of the loan or it may fluctuate at certain time frames.
Taxes are levied by MA based on the assessed value of real estate. The total is determined annually but often due at specific times of year. Overdue taxes become a lien on a property and take priority over mortgage liens. Many lenders will, therefore, require borrowers to set aside money into an escrow account to ensure that the bills are paid. Funds are collected in monthly increments by the lender as part of the regular monthly payment. The lender then pays the taxes directly instead of waiting for the borrower to do so. It is a way of protecting their investment.
There are different types of insurance that may apply to a home. Homeowners is commonly mandated while mortgage insurance depends on the specific loan. Both may be included in monthly mortgage payments.
Homeowners insurance protects against hazards such as fire. Mortgage companies require this insurance to protect the collateral on the mortgage. Policy premiums are payable yearly and most will want monthly contributions into escrow (similar to tax escrow). They will then submit payments to the insurance company directly to make sure the policy remains active.
Mortgage insurance is common for loans higher than eighty percent of the property value or purchase price. It protects the lender should you stop making payments. Lenders estimate that they will not recover the full balance of a loan if the home forecloses, so the mortgage insurance covers part of their loss. Even though it protects the lender, it is charged to the homeowner.
Understanding MA Recurring Mortgage Payments
Not all financing is structured the same and therefore not all MA recurring mortgage payments will include all of the components above. There may be additional monthly fees such as condo fees, which are not escrowed by mortgage companies but are a significant consideration in calculating total monthly home expenses. Remember that exact amounts are determined by a specific property and interest rate, so any up-front figures will likely change.To receive an estimate on what may be part of your mortgage payments, contact Christopher Graves at Emery Federal Credit Union via phone at 781-759-1200 x22 or email firstname.lastname@example.org.