Components of a Monthly Mortgage Payment2017-11-29T15:50:50+00:00

Components of Monthly Mortgage Payments

Your monthly mortgage payment is made up of a number of components commonly referred to as “PITI” (Principal, Interest, Taxes and Insurance).

PRINCIPAL. The beginning loan amount as stated on the loan note and the subsequent balance after each loan payment is made.

INTEREST. The charge for the use (loan) of the money.

TAXES. The county assessor determines the property tax based on the value of your home. Taxes may be impounded, depending on the amount of your down payment (anything less than 20% usually requires an escrow account).

HOMEOWNER’S (HAZARD) INSURANCE. An insurance that covers the loss of the home from specific hazards, such as a fire. An insurance agent provides this type of insurance. The standard policy pays replacement costs minus depreciation based on actual cash value. See an insurance agent with any questions about homeowner’s insurance. This type of insurance may also be impounded in an escrow account with property taxes.

PMI, FHA MIP, VA FUNDING FEE, USDA GUARANTEED FEE. Charges for PMI, an FHA MIP, a VA Funding Fee, or a USDA Guaranteed Fee may be included in your monthly payment depending on your loan type, the amount of your down payment, and the unpaid balance of your loan. Often these fees are included in financing to keep your closing costs lower.

HOMEOWNER’S ASSOCIATION DUES (HOA FEES). If you belong to a homeowner’s association, your monthly dues may make up a portion of your monthly payment.

components-of-payment-picWHAT IS AN ESCROW OR IMPOUND ACCOUNT?

An escrow or impound account is an account that a lender may set up to pay certain recurring property-related expenses, such as property taxes and homeowner’s insurance. These expenses are usually semi-annual or annual and may involve potentially large payments. Lender often require escrow accounts to ensure you have enough money to pay those bills when they come due. A lender breaks these expenses down into monthly installments and adds them to your mortgage payment each month. Your mortgage servicer manages this account and pays the property-related expenses covered by the account on your behalf.

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