What is included in a Mortgage Payment?

by | Mar 5, 2017 | Real Estate | 0 comments

Upcoming Free (& non-promotional) Home Buyer Classes:

Saturday, March 18th, from 12pm-3pm (ish)
Vancouver YMCA, conference room
11324 NE 51st Circle, Vancouver WA (corner of SR500 & Gher Road/112th Ave)
Saturday,March 25th, from 10am-1pm (ish)
       Marshall Community Center, conference room
       1009 E. McLoughlin Blvd, Vancouver WA (kitty corner from Clark College)
Saturday, April 8th, from 9am-12pm (ish)
       Marshall Community Center, conference room
       1009 E. McLoughlin Blvd, Vancouver WA (kitty corner from Clark College)

Tuesday, April 11th , from 5pm-8pm (ish)
  Marshall Community Center, conference room
1009 E. McLoughlin Blvd, Vancouver WA (kitty corner from Clark College)

If these class dates and/or times don’t work for you, please let us know.  We understand that you have lives, and families, and work.  We will work something out that works better with your schedule.  Just let us know….                                                                                  
….we also have home seller classes available too…link on left on website

Remember…with reservation…we will throw in lunch, or dinner!  🙂
  Happy Sunday Morning! 

 Buying a home will be the largest purchase you ever make.  The only thing that will cost your more than buying a home is having a child.  🙂  Like a child, you have to take care of your home though, and there is more to home ownership than most people realize.  

Every month you pay bills, and your mortgage payment will most likely be your largest monthly expenditure, but what is it?  We will talk in the next week or so about how a mortgage payment works, but this week, let’s talk about the five parts of a mortgage payment.  

Now…what is all in your payment?
   There are four parts to your mortgage payment…it is called a PITI payment.  What that means is Principal, Interest, Taxes, and Insurance.  For example, if someone’s mortgage payment is $1500, the principal/insurance portion would be only $900 a month, the other $600 a month is put into an escrow account.  Out of this account comes the homeowners insurance payment once a year, the taxes are also paid from this account twice a year.  Out of this escrow account would also come the flood insurance…if someone lives in a flood plain… or at least in a 100 year flood plain, where flood insurance is required.  If someone lived in a 500 year flood plain then flood insurance would be suggested, but not required.  All of these fees are wrapped into the monthly mortgage payment.  Anytime you are using a FHA, or any government type of loan like RD (USDA), or the down payment assistance programs & grants (like Home Advantage or the NHF), these fees must be wrapped into the mortgage payment.   If you don’t have a 20% down payment (like 99.9% people), then your mortgage payment will actually have FIVE PARTS with the fifth part being Mortgage Insurance. 

Mortgage Insurance vs Homeowners Insurance
 Mortgage insurance is different than home owners (sometimes called, Hazard) insurance.  In a nutshell, mortgage Insurance protects the lender in case you default on your loan, and homeowners insurance protects you & the lender in case something happens to the home….ie.. a fire, a tree falling on your home, a car driving into your home, burst pipes, etc.  
Mortgage insurance is required if a buyer has less than 20% down payment.  FHA & USDA loans require that the mortgage insurance is carried for the life of the loan.  The good news is that, as your principal loan amount goes down, the dollar amount that goes toward mortgage insurance also goes down.  If someone were to buy a home with a conventional loan (5% down payment or more), then the mortgage insurance can be removed once the home owner hits a 80% value in the home.  This can be done by payments, or as the home increases in value through market increases. 

Homeowners Insurance
   Now, please remember, you do choose your insurance company!  One of the things I suggest to clients is to contact their insurance company after they make their offer and to do a couple of things…(1) Has there been any water of fire claims in the past 3-5 years on this home?, and (2) How much would the insurance be for this home?  Average homeowners insurance is about $500-$700 a year….again, it is wrapped up into your monthly mortgage payment so it is not another extra expense.  You do get to choose your company, and many companies will give you discounts for ‘bundling’ your policies.  It doesn’t hurt to call around for quotes.  Once you choose a company request that your insurance agent send over an ‘insurance binder’ over to your lender.  Once you get keys for your home, it’s always a good idea to call your home insurance provider and talk to them about earthquake insurance, or umbrella coverages.  Remember that Homeowners insurance is only good for items outside your ‘Custody, Care, or Control’….not maintenance items.  It’s a lot like car insurance…only use it if something bad happens that you couldn’t control. 

Property Taxes
  Taxes are decided by the county, and are usually paid twice a year.  You may get a copy of the tax bill, but again, it is paid by your mortgage company out of your escrow account.  I always get phone calls when these bills come out.  😀  No worries…it is just for your records, and I encourage your phone calls!!  🙂  Please remember that ‘Tax Assessed Value’ is NOT market value.

Principal & Interest
   Now…your principal and interest portion of your mortgage payment.  As we know a portion of your mortgage payment every month goes toward the principal amount that your borrowed to purchase your home, and a portion goes toward the interest that the lender is charging you.  In the beginning of your loan the smaller amount goes toward principal, and the larger portion goes toward interest…this eventually switches.  We all know the wisdom of making an additional payment every year on your mortgage to reduce your loan time.  Some banks will offer to take your payment in two week portions, and make your additional payment for you.  Honestly I don’t advise this…..before you think I am crazy, this is the reason why….the bank actually holds your money and makes your additional payment at the end of the year.  This isn’t the best way for you, really….  I always pay between $25-$100 extra on my mortgage every month depending upon our finances that month, but apply it directly towards my principal borrowed amount.  At the end of the year I have made that extra payment directly towards my principal, which is less money I can be charged interest on!  This will shorten my loan length considerably.  In the end I actually pay MORE on the principal amount than I would have if I had just made one extra payment.  My suggestion to all my clients is to take that $20 from each paycheck and put it into that credit union far away (with no debit card or checkbook for) that is for your home repairs that are needed as a homeowner.  If you just put at least $25 per month extra toward your principal loan amount you will also be shortening your loan time.  This sounds like a lot…but really is it?  It is a trip to McD’s (for my family anyhow as we have 6 people, or a couple of Starbucks- or Dutch Brothers, my preferred drink- trips a month)…but it will help you in the long run immensely.

So there are the 5 parts of your mortgage payment…Principal, Interest, Taxes, and Insurance…both Mortgage & Homeowners…..all tidily wrapped up into one payment every month..

  Yay!  I kept it shorter this week!  😀  It’s like going to the grocery store, and only coming out with the items you went in for!!  
Information is power, and I hope that I am able to help you.  Good luck, and as always…May the odds be ever in your favor out there….  If you are looking for a real estate agent, I would be honored to be able to help you.  
 As always….this is just a quick overview…. please remember that your agent, and your lender work for YOU.  You drive the bus…we are merely GPS to help you get to your goals.  Like the classes, this weekly blog email is to help you with your home adventure.  The goal is to be informative and non-promotional.  🙂  We are, however, hoping you will call and want us to help with your adventure.  

If you have any questions about this, or something you have heard…or if you would like me to help you with your home adventure, please call, email, text, or facebook me anytime.  I am, as always, happy to help!
Thank you again for your business and your referrals!!  …and thank you for referring these classes to your friends, family, and co-workers. 
 .  ..disclaimer…if you have already purchased a home, or would no longer like to receive these emails, please let me know and I will be happy to remove you from any further mailings… 
 Next Week:        What is in my Mortgage payment?  or Websites to find homes, and what status’s mean
or…  Escrow Accounts (what they do, and what they are)

Last Week:  Signs of Spring… Open Houses!
Have a great day, and I will talk to you soon,

Tracie DeMars / Realtor

ReMax Equity Group
License# 81289
Vancouver, WA

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