 Sam
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 Posted: Fri Mar 26, 2004 4:59 am Post subject: Components of mortgage payment |
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Mortgage payment consists of four parts: principal, interest, taxes and insurance (PITI).
- Principal:
Principal is the amount of money borrowed. In the early years of the mortgage, a mortgage payment include only a small portion of the principal and as the years passes by, mortgage payments include a great portion of the principal due.
- Interest:
Interest is the cost of borrowing money, usually expressed as an annual percentage of the loan amount. Lenders offer different rates depending on the type of loan. For example, 4%, 6%, etc.
- Taxes:
Taxes are paid by the homeowners to local governments and are usually charged as a percentage of the assessed property value. The amount of the tax will vary depending on the location of the home.
- Insurance:
Homeowner's or Hazard Insurance is a policy that protects the borrowers against financial losses on their property as a result of fire, wind, natural disasters or any other hazards. Mortgage insurance is an insurance policy that pays mortgage lenders for part of their financial losses if a borrower fails to fully repay a loan.
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