A Guide to the Structure of Mortgage Payments
A mortgage is a way for you to purchase a house of your own without having to burden yourself with expending an amount that is too much for you to afford at one go.
However, it is very important to gain more knowledge about the components involved in mortgage payments. A Clear understanding of its structure is crucial when you decide to finance your house.
This structure is composed of the principal, the interest, the taxes and the insurances. All these components put together will identify the duration of payment until its completion and how much you will have to ultimately spend on your house in total.
Are you shopping for a mortgage? A great resource we recommend is to use the mortgage payment calculator at LifesGreat.com. The site is a good place to start gaining an idea of how much you may have to pay monthly according to the amount of money which you plan to borrow and the period of time within which you plan to repay in full.
For now, let us learn the basics.
What Comprises the Structure of Mortgage Payments?
Aside from the size or the entire amount of the housing loan and the term or the duration of the repayment of the housing loan, there are these four components that sum up to the entirety of your mortgage payment.
The principal amount refers to the amount of housing loan or the original amount of investment on housing loan that is without the accumulated earnings or interests yet. It is usually in the final years of completion of the housing loan during which the repayment of the principal amount of debt is allocated.
This interest refers to the earnings of the lender from the housing loan.
The interest rate directly influences how much the mortgage payments will be in the end. In most cases, if the interest rate is higher, the principal amount borrowed is reduced. While when the interest rate is lower, the original amount of investment on housing loan tends to be higher. This is the usual inverse relationship between these two components in the structure of mortgage payments.
The real estate taxes are determined, calculated and implemented by the government on an annual basis although new homeowners may opt to pay real estate taxes as part of their monthly amortization.
It is the housing loan creditor who collects the real estate taxes along with the monthly amortization and keeps them until the scheduled payment of taxes.
Mortgage payments may include private mortgage insurance coverage and property insurance coverage.
Basically, private mortgage insurance protects the lender while property insurance protects the house. The former covers for the housing loan creditor should the debtor fail with mortgage payments although the borrower can be let off the private mortgage insurance payment obligations upon completion of at least 20 per cent of the home equity.
The latter covers for the house itself in the event of destruction due to effects of natural calamities, occurrence of fire or other intentional actions inflicting damages on the residential property.