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What’s Included in Your Monthly Mortgage Payment?

You’ve picked out a house, completed an inspection and all that’s left is closing. Soon you’ll officially be a homeowner. Congrats!

Buying a house is a process – one that can last for months or even years. You need to find a place you can afford, but you’re also looking for something that you’ll be happy to call home. Through break-neck-pace negotiations and last-minute stipulations, prospective homebuyers face an arduous set of hoops to jump through.

And once the deal’s made, you’re on the hook for a new monthly payment – your mortgage. You know how much you’re handing over with each payment, but do you know where all that money is going?

Mortgages take care of your principal, interest, property taxes and insurance. And they might cover more. Here’s how mortgage payments are structured.

Principal + Interest

The first chunk of your mortgage goes towards principal. This is the amount you’re paying – based on your specific amortization schedule – to pay back your loan. It’s the debt you need to repay after being loaned the money to secure the house.

The second payment your mortgage includes is interest. This is the amount the lender is charging you to borrow the loan. Rates are largely determined by economic and market trends, but are ultimately based on an number of different variables.

Taxes + Insurance

Property taxes and insurance payments are included in your mortgage as well. Property tax bills are levied on a consistent basis and used to pay for local services and institutions like school districts, police and fire departments and infrastructure.

Your mortgage is also paying for homeowners insurance, which protects your home from unfortunate events like fires or extreme weather. Often times, your insurance and tax payments will be put into escrow – this way, you make one payment each month instead of covering these expenses separately.

Additional Costs

Depending on your loan structure, you might be responsible for additional costs with each monthly payment. These might include private mortgage insurance or homeowner association fees.

Lenders may have a borrower pay for private mortgage insurance if their down payment is less than 20% of the home’s cost. This is done to protect the lender in the event a borrower defaults on a loan.

The other cost you could incur is a homeowners association fee. These payments are used to cover maintenance costs in condos or other shared properties. This fee might also be applied in gated communities or certain neighborhoods.

Homeownership – In Plain Language

Sunrise Banks offers a number of mortgage options, including ITIN loans. Feel free to contact a mortgage officer with any questions you have regarding the home-buying process.

Looking to buy and feeling overwhelmed? Shoot us a line or check out some of our home-buying resources.

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