The Mortgage Payment
The mortgage payment is the money you give to the lender or bank each month to repay the loan and pay the costs for borrowing the money.
A mortgage payment has four parts. The four pieces of a mortgage payment are often called PITI short for principal, interest, taxes, and insurance. The following are definitions of each part of the mortgage payment.
Principal:
is the amount of money that you borrowed.
Interest:
is the money that the bank charges you for the loan. Interest is a percentage of the principal.
Taxes:
is money that is charged to you by local and state governments. A portion of you taxes is added to your mortgage payment and put in an escrow account until it is time to pay the taxes.
Insurance:
your mortgage payment will include payment towards you insurance policies. In a lot of cases you will have to pay for the following types of insurance.
- Hazard Insurance: covers you against damage from storms, fires etc
- Flood Insurance: if you mortgage is federally insured, and the property you are buy is in a flood plain. you will be required to purchase flood insurance.
- Private Mortgage Insurance (PMI): If you made a down payment of less then 20% of the value of your home or have less then 20 % equity in your home, you will have to pay for Private Mortgage Insurance or PMI