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Mortgage Payments: Everything You Need to Know


Buying a home is an exciting milestone in life, but it also comes with a lot of financial considerations. One of the most significant aspects of homeownership is understanding your mortgage payment. It's not just a single number; several components make up your monthly mortgage payment. Let's break it down into simple terms:


Principal: The principal is the amount you borrowed from the lender to purchase your home. Each month, a portion of your mortgage payment goes towards paying off this initial loan amount. Over time, as you make payments, your principal balance decreases.


Interest: Interest is the cost of borrowing money from the lender. It's essentially the fee you pay for using their funds. The interest rate is determined by various factors, including your credit score, the current market conditions, and the type of loan you have. At the beginning of your mortgage term, a significant portion of your monthly payment goes towards paying off interest. However, over time, as you chip away at the principal balance, the portion allocated to interest decreases.


Taxes: Property taxes are imposed by local governments and are based on the assessed value of your home. The amount you owe in property taxes can vary depending on where you live and the value of your property. Typically, lenders require homeowners to pay a portion of their annual property taxes each month as part of their mortgage payment. These payments are held in an escrow account, and the lender pays the taxes on behalf of the homeowner when they become due.


Insurance: Homeowners insurance protects you financially in case of damage to your property due to unforeseen events like fire, theft, or natural disasters. Lenders require homeowners to carry insurance as a condition of the mortgage agreement to protect their investment. Similar to property taxes, homeowners often pay a portion of their annual insurance premium each month as part of their mortgage payment.


Private Mortgage Insurance (PMI): If you make a down payment of less than 20% of the home's purchase price, lenders typically require you to pay for private mortgage insurance. PMI protects the lender in case you default on your loan. The cost of PMI is added to your monthly mortgage payment until you have built up enough equity in your home to reach the 20% threshold, at which point you can request to have the PMI removed.


Understanding what goes into your mortgage payment is crucial for budgeting and financial planning as a homeowner. By breaking down the components of your monthly payment, you can gain a better understanding of where your money is going and how it contributes to building equity in your home over time. Want to see an example of what your monthly payment could be? Use our House Payment Calculator then connect with a ONE Presidential Mortgage loan officer today to take the first step towards unlocking your homeownership dreams.

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