You Can Control Your Mortgage Payment

Mortgage payment amounts can vary dramatically from one type of mortgage to another, and from one borrower to another. When you’re shopping for a home purchase or refinance loan, it’s important to know what goes into your mortgage.

What’s in a mortgage payment?

Mortgage payments are made up of four different parts – principal, interest, taxes and insurance (collectively known as “PITI”).

• Principal: The portion of the mortgage payment that represents the money you borrowed.
• Interest: The part of the mortgage payment that is paying for the interest expenses you owe.
• Taxes: If an impound account is used, part of the mortgage payment is placed into an escrow account and used to pay your property taxes.
• Insurance: If an impount account is used, part of the mortgage payment is used to pay your homeowners and/or private mortgage insurance.

Factors that Impact Your Mortgage Payment

• How much you borrow (principal)

  • Subject to lender underwriting limitations, only you can decide what you can afford and whether making your mortgage payment will be comfortable.
  • Choosing a lower-priced property and making a larger down payment will keep your mortgage payment down.

• The length of the loan term

  • The shorter the term, the larger your monthly mortgage payment, but the faster you pay off the loan.
    
    Keep in mind that with a 15-year term, you can pay your mortgage faster with less interest than compared to a 30 year term. And the increased payments on a 15-year loan don’t even come close to doubling the mortgage payments of a 30-year loan.

• How much you pay in interest

  • Adjustable rate loans generally offer lower initial interest rates than fixed rate loans, but payments can increase during the term of the loan.
  • Making a larger down payment and paying more upfront points can contribute to reducing your interest rate and mortgage payment.
  • Your credit history and credit score will play a factor in determining how much interest you’ll pay to borrow. The higher your credit score, the lower your interest rate and mortgage payment will likely be.

• Private Mortgage Insurance (PMI)

  • If you make a down payment less than 20% of your home’s value, most lenders will require you to purchase private mortgage insurance (PMI). PMI insures the lender in case the borrower defaults on their loan payment obligations.