COMPONENTS OF A MORTGAGE
A monthly mortgage payment may contain several components :
Principal The original balance of money loaned . As the loan is paid over time , the principal is the remaining loan balance .
Interest The charge for the use ( loan ) of money . The interest rate remains constant in a Fixed Rate Mortgage . The rate can vary according to specified guidelines over the life of an Adjustable Rate Mortgage ( ARM ).
Property Taxes The county assessor charges property taxes based on the value of your home . Tax installments are due each year . These can be added to your monthly mortgage payment , put in an escrow impound account ( a special account set up by the lender in which money is held to pay for taxes , insurance premiums , etc .).
Insurance Protection against loss resulting from certain hazards , such as theft or fire . The standard policy pays replacement costs , minus depreciation based on actual cash value . You will need to obtain homeowners insurance from an insurance company . I can connect you with our in-house insurance agent through HomeServices Insurance to get a complimentary insurance quote .
Private Mortgage Insurance ( PMI ) Loans with smaller down payments involve greater risk for the lender , who requires protection in case the loan goes into foreclosure . Without PMI , lenders would be reluctant to offer loans with lower down payments . Anything less than 20 % down payment usually requires PMI .