Purchasing a home with your spouse is an exciting time when you can have a place to call your own, decorate as you please, and gain more stability for your family. When taking out a home loan with your spouse, you should know what you’re responsible for and what the laws in your state say […]
P.I.T.I.: Understanding the Parts of Your Mortgage Payment
If you are planning on purchasing a home, you are most likely going to be taking out a home mortgage. Since your monthly mortgage payment consists of more than just your Kansas City mortgage rate, it’s important to understand the other factors that make up your overall payment, or P.I.T.I.
P.I.T.I is short for:
Principal is the actual amount you borrowed from your lender. If you have a fixed rate mortgage, the mix of principal and interest that you pay each month changes throughout the life of the loan. In the first years of your loan, your mortgage payments will primarily be put towards paying interest. In the later years of your loan, the payments will go towards paying down the principal.
Interest is the amount charged to the consumer for borrowing funds to purchase a home. The interest you pay each month will be determined by your Kansas City mortgage rate. It is a percentage of the outstanding principal, which is the amount on the loan that still needs to be repaid.
Your lender will calculate your estimated annual property tax based on the current tax rate. Monthly mortgage payments can change depending on the assessed value of your home and the tax rate in your city.
Since these values can change over time, it’s important that you keep close watch on your home’s assessed value as well as your local tax policy. The portion of your monthly mortgage payment associated with taxes and insurance will be held in escrow until it’s due.
When you buy a home, you will be required to purchase a homeowner’s insurance policy. Most borrowers are supposed to carry a homeowner’s insurance policy until their home is paid off in full. Remember to keep in mind that you may also need to have private mortgage insurance depending on the size of your down payment. This factor will increase your mortgage payment each month.