Last week's blog, I explained what mortgage points are.  Today, I will explain what makes up your mortgage loan payment.  I had quite a bit of interest after last weeks blog, so I thought I better address this as well.

A monthly mortgage loan payment is made up of four different parts.  It's more than just the purchase price of your home.  It has 4 distinct components often referred to as PITI-principle,interest,taxes, and insurance.

The principle is the original amount of money loaned to you by the bank.  If you get a loan for $125,000, then the principle amount of the loan is $125,000

Interest  is what the banks charge you to use their money.  Interest rates are a big factor in determining the size of your mortgage payment.  The higher the interest rate, the higher your payment will be.  Its the interest rate that often determines how much a borrower can afford. Here's an example:  If you were to borrow $100,000 at 5% for 30 years, your interest plus principle payment would be $537.00 a month.  If however, interest rates were to go up to 9%, that payment would balloon to $805.00 a month.

The next item are your property taxes.  Taxes can be assessed by your city and/or county.  Its the government agencies that calculate your home's worth and collect taxes based on that, and then use these taxes they collect to fund local services such as police, fire departments, and education.

So what your lender may do is place your tax payment, which are typically due once or twice a year, into a special fund called an escrow account until its time to make the full payment to the government agency.

There are actually two kinds of insurance that can be included in your mortgage payment.  The first one is called a homeowner's insurance.  This covers your home in case its damaged due to a hazard.  It can also cover the content of your home and additional expenses to live outside of your home while your home is being repaired.  Now the cost of this insurance will depend upon the replacement cost of your home, your contents, and the amount of liability coverage you seek.

The second kind of coverage is called PMI-Private Mortgage Insurance.  This insurance is often required by lenders if you made a down payment of less than 20%.  PMI provides protection against foreclosure, so lenders feel more comfortable offering loans with a lower down payment.  Again, this kind of insurance rates vary, depending on the loan.  However, your PMI will remain the same throughout the length of the loan, so this portion of your monthly mortgage will remain the same.  

So, I hope this helps you as you consider buying your home.  If you have any other questions about loans, feel free to contact me.

Lisa Longest a real estate professional with over 13 years experience, specializing in listing and selling residential homes on both sides of the Chesapeake Bay Bridge, in Anne Arundel and Queen Anne county, from luxury homes to more modest dwellings.  Lisa is an active member at MidShore Board of Realtors®

You can reach me  best on her cell phone at 443-786-4200, or via email  EXIT GOLD REALTY is located at 115 Pullmans Crossing Road, Grasonville, MD 21638. The broker, Debbie Houck, can be reached at the office under 410-304-2115.