So, you’ve finally made it to that life stage where you’re going to buy your own slice of the land. Congratulations! You can finally live your life without worrying about your parents storming in or risk waking your apartment neighbor up. But before you
get too carried away, you have to remember that you won’t be an official owner of your new home until a decade or so later. That’s because you’ve got to handle your monthly mortgage payments.
In a nutshell, mortgage payments are how you pay back the loan you took to purchase the home. It’s usually what you’ll shell out of the bank once per month, which includes interest due to your lender, insurance payments, and taxes. By planning out these
payments ahead of time over the course of your loan is a process called mortgage amortization. As you can probably tell by now, mortgage payments are a little less simple than rent payments. Because they consist of several components that are crucial
to understand, we’ll give you a full breakdown of your mortgage payments to empower you in making your best decisions.
What Does a Mortgage Payment Include?
Meet your new best friend — the acronym PITI. When you think of a mortgage payment, this is the acronym that should instantly spring to your mind. But who exactly is your new best friend? Let’s break it down into Principal, Interest, Property Tax, and
This first component of your mortgage is that big lump of money that you originally borrowed from your lender to purchase your home. If you bought a home for $300,000 with a down payment of 15% from your own pockets, your principal would be the $255,555
that you borrowed and would have to pay back. However, that’s not all. Principal always has a sidekick that lurks discretely around — interest.
Without interest, lenders wouldn’t have any incentive to loan you big chunks of their money. They could be doing it out of the kindness of their hearts, but they’ve got bills to pay off themselves. That leaves you having to shoulder the burden of the
interest payment. In essence, interest is a percentage of your principal, or how much of the loan you have to pay back. When choosing a mortgage, it’s best that you go with a fixed interest rate so that what you have to pay is constantly predictable.
Adjustable-rate mortgages, or ARMs, can throw you a curveball that completely knocks you out when you least expect it.
Because your home is one of the largest investments you’ll ever have to make, it’s crucial that you obtain homeowner’s insurance. You’ll thank your future self once a storm hits and your home suffers damage that you don’t have to pay for. By obtaining
insurance for your home, you’re putting the risk and responsibility on the insurance company to cover any repairs that have to be made. How this factors into your mortgage payments is that your lender will also collect your homeowner’s insurance premium
on top of everything else in the PITI acronym. To determine how much you’ll have to pay, it depends on how much coverage you want. For more personalized payment plans, it’s best that you consult your independent insurance agent.
Although this one isn’t included in the acronym, it’s something that you should take note of. If you live in a residential community, you might have a Homeowners Association fee to pay for property maintenance and access to the shared facilities and services.
Even when you already feel the burden of the individual income tax, the government will throw you another one with the wonderful property tax. You can pay it as part of your monthly mortgage payment and your lender will save that chunk of money up in
another account called an escrow. Then at the end of the year, your escrow company will take all that accumulated property tax and send it straight to the government. When determining how much your property tax will be, it’s important to note that it’ll
be determined by your house’s assessed value, and not the market value that you paid for. What that means is that a property assessor will come inspect your home and let the government know what they think it’s worth.
Property Taxes in Texas
If you’re after a gorgeous home in Texas, then there are steps you can take property-tax wise to ensure that what you’re paying is correct and effective. At Brian Burds, we assist in the form of homestead exemption to help you save money on the following
year’s taxes. We can also help assess your true property value to ensure that you’re not being taxed on a higher amount that you should be.
Getting a Low Interest Rate
When it comes to the interest rate, the lower the better, right? Luckily, there’s a step you can take on your end to reach that goal. One of the best tried and true methods is refinancing your mortgage — especially if you plan to live in your house for
quite a while. Doing so can help reduce your payments, but you’ve got to make sure that your credit and finances are in proper standing among several other factors to increase your chance of being approved for refinancing.
Now that you’ve become acquainted with your new best friend known as PITI, you’re now armed with all the knowledge you need to make your first monthly mortgage payment. Once you’ve gotten that taken care of, you’re free to enjoy your new home to the fullest!
Disclaimer: Please consult an Accounting expert who often has experience within mortgage broking as a way to provide and assist you with tax and finance matters, an
accountant with mortgage broking exposure can assist you when you’re looking into loans for properties or businesses.