Our highlight on American Housing Month continues. Today, we’re answering an often confusing question - what is included in a mortgage payment?
All mortgage payments consist of principal and interest. Principal is the portion of the payment that reduces the original amount borrowed. Interest is the portion of the payment the homeowner pays for borrowing money from a lender, charged as a percentage of your loan amount. In many circumstances, a lender may also escrow for taxes and insurance. If escrowed, your payment would now include principal, interest, taxes and insurance, often abbreviated and called a PITI payment. All this means is that the bank is collecting a 1/12 portion of your taxes and insurance, holding it in an escrow account so when the time comes the bank pays the property taxes and homeowners insurance premium on your behalf. Escrowing for taxes and insurance allows you to accrue the annual amount needed to pay these two typically large obligations in small increments over the course of a year and for many homeowners, budget their money more effectively.
Director of Special Projects at Maguire Dealerships
3wGreat to hear