Mortgage Payment Basics:
Mortgage payments are generally due at the beginning of the month, and most lenders start assessing late fees on the 15th. It is extremely important to remain under 30 days late on a mortgage payment. Late mortgage payments greatly affect your credit score.
What makes up the mortgage payment?
This is the portion of your payment that goes towards paying down the balance. An Amortization Schedule will break down the exact amount of each payment that is being applied to the principal and interest. Your mortgage professional can provide one.
The interest payment is essentially the amount you’re paying the bank over time to borrow the principal balance.
Real Estate Taxes can either be included (Impounded) in your monthly payment or paid by the homeowner separately. Most people choose to have it included in the monthly payment for convenience and to insure they don’t have a large tax bill that they aren’t prepared for. Typically if you are borrowing more than 80% of the value of your home, the lender will not give you a choice and require the taxes to be included in the payment.
This is your hazard insurance (Fire), which protects your home and belongings.
This can come in a few different forms, depending on whether you have an FHA loan, Conventional orJumbo loan
Mortgage insurance is in addition to hazard insurance, and completely unrelated. A lender will require a borrower to pay mortgage insurance on a property with a Loan-to-Value greater than 80%. The main purpose of mortgage insurance is to protect the lender from foreclosure losses if the borrower fails to meet the monthly payment obligations.
FHA has mandatory Mortgage Insurance, but in a different form.
VA loans have a separate Funding Fee to help protect their interests. It is not referred to as mortgage insurance.
Frequently Asked Questions:
Q: What Is an Impound or Escrow Account?
You’ve heard of the acronym PITI (Principal, Interest, Taxes and Insurance). The escrow account covers the T&I, and is included in the monthly payment.
Q: Are Impound Accounts Required?
Government loans, FHA and VA require an escrow to be established when a new purchase or refinance transaction is finalized.
If the LTV is below 80%, an escrow waiver is allowed. However, there is typically a higher interest rate associated with a mortgage payment that doesn’t have an escrow account due to the lender taking on more risk.
Q: If I refinance my existing loan, what happens to my impound account?
Whatever the current lender is holding will be refunded back to you when they are paid off.