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Anatomy of Your Monthly Mortgage Payment

May 26, 2021
Now, there are two questions that every single person asks a loan officer when they are considering financing a new home OR refinancing their current one. 

The first is “what is my interest rate?”, the second is “what is my monthly payment?”. While both are incredibly important questions to discuss with your loan officer, we’re going to focus on “what is my monthly mortgage payment and what does it consist of?” 
 
When thinking about your monthly mortgage payment it’s important to understand that in most cases it is made up of at least the following three components; principle and interest, taxes, and insurance. In some instances, you will also pay an association fee.

Prinicpal & Interest

Let’s start with principal and interest or as you may have heard it referred to, P&I. The easiest way to think of your P&I portion of your monthly mortgage payment is that part determined by your actual mortgage. This section of your mortgage will never change over the life of your loan unless of course, you refinance. P&I is calculated using simple interest. This means that the interest is always calculated based on the amount of principal left to be paid back. While the total amount of P&I you pay monthly will never change, because the interest is not on the total amount you borrowed but instead the amount you still have to pay back, each month the amount of your payment that goes to principal will increase and the amount that goes towards interest will decrease. At some point, usually approximately halfway through the life of your loan, you will begin to contribute more to principal monthly than interest.  If this is of particular interest to you, please reach out to your Loan Officer and they will be happy to go over what we call an amortization schedule so you see exactly what amount of your monthly payment goes to principal and interest for the entire life of your loan.

 

Another important thing to understand about P&I is that you are always paying in arrears. That means when you pay your June mortgage payment you are paying for the month of May. For example, if you close in May you will not pay a mortgage payment until July (well you will pay it but at closing). For more information about closing costs and what to expect, head to our Closing Blog. For now, just know your P&I is always paid in arrears.


Taxes

The second portion of your mortgage payment is taxes. The amount of property tax you pay is fixed and the lender does not control that. In most instances, your yearly taxes are divided by 12 and paid monthly as part of your total monthly mortgage payment. Whether taxes are paid in arrears or for the upcoming month differs from state to state.



Insurance

The last component of most monthly mortgage payments is insurance. There are two types of insurance to keep in mind; Homeowners insurance and mortgage insurance. Homeowners insurance protects you and mortgage insurance protects the lender.

 

Homeowners insurance is required no matter your situation. You will obtain homeowners insurance from a third party and the servicer of your loan will pay that for you each month. Unlike P&I and some tax payments, this is always paid going forward, NOT in arrears. In most cases, both taxes and homeowners insurance are paid from an escrow account and your servicer handles it for you, nothing for you to worry about.

 

Mortgage insurance is only applicable if you put down less than 20% on your home. The cost, timespan you pay it, and the format you pay varies based on product and mortgage insurance company and is something your loan officer will go through with you in detail. This should absolutely not be a deterrent.


Other Fees

The last portion of a mortgage payment is only applicable some of the time. These are association fees. Association fees are paid if you have a homeowners association based on where you are buying. You can expect to see these fees as part of a condo, co-op, or housing community.

 

Your monthly mortgage payment is important to understand. Make sure you ask any questions you have to your loan officer and ensure you understand exactly where your money is going each month.


Having a firm understanding of your monthly mortgage payment will not only help you feel more at ease with paying your mortgage but will also help you navigate the entire home buying process more confidently.


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Q1 Recap

By Mikaylah Collins • 12 Apr, 2023
We've begun to see signs that the Spring Market is here and could be robust! Here is what we know: According to NAR, home sales were up 14% in February over the previous month which marked the biggest monthly increase since July 2020. While March results are not yet published, the mortgage industry saw an increase in purchase applications for the 3rd straight month; a great sign for the housing market. Driving much of this activity is the stabilization of rates in January & February and lower interest rates this past month. We’re starting to see signs of a slowing economy and the markets are now pricing this in. This week we saw the 10-yr Treasury drop under 3.4%, a level it has not reached for quite some time and the lowest it’s been since September 9, 2022. This is great news for consumers as decreasing rates mean more home affordability. Over the past year, most markets have seen home prices stabilize if not even decline, albeit by a very small amount. This stabilization was still a relief for homebuyers as it helped to offset higher interest rates. As rates continue to decrease, we would expect home prices to again increase due to demand increases. In addition to increased demand, there is still a shortage of homes for sale nationwide and that will continue to worsen as more and more homebuyers enter the market.  So what does it all mean? Now is a GREAT time to buy a home! Rates and home prices are stable, there is not as much competition as there will be when rates do decrease, and buying a home is still extremely affordable for most. Once rates fall, we will likely see home prices rise and the competition for the shortage of homes will increase alongside it making the window of a buyer-dominated market very small.

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Finding The Right Listing Agent For You

By Sarah Rubin • 15 Dec, 2022
Buying a home is a huge investment and one we talk about often - BUT the flipside is that you have an opportunity to cash in on that investment when you’re ready to sell your home! While you do have the chance to cash-in, a lot more work goes into selling a home than you might think! If you are considering selling your home, working with a listing agent will help you market your home, negotiate with potential buyers, work through paperwork, and ultimately close on your home! So what is a listing agent? In its most basic terms, a listing agent is a real estate professional who represents the seller in a real estate transaction. The listing agent lists the home for sale and works on behalf of the seller to sell the home at the best price and terms for their client. Listing your home is a BIG deal and it is not a place to try and DIY. But why can’t you just grab a sign at Home Depot and try and sell yourself? Well, there are lots of reasons some of which include: Professional consultation: A listing agent will walk you through each step and tell you what to expect along the way! They should understand the specific community you’re in and the current market environment and will help you determine a competitive but realistic asking price for your home. Marketing and selling your home: Your listing agent will list your home on the multiple listing service (MLS) in order to better market your home to potential buyers. They also can make staging recommendations and hire a photographer to best show off your home and its features. They’ll schedule house showings, and can be present to answer any questions. Communication and negotiation: Communication is key to both buying and selling a home in order to minimize stress and misunderstandings. Listing agents take care of this important task, by staying in touch with interested buyers and their agents, fielding questions, handling paperwork, and negotiating the final sale price and terms. Recommendations: Seasoned listing agents might come with a list of professionals who they have worked with in the past that they enjoy working with in order to make the selling process smoother for you! Some of these professionals include: real estate attorneys or title companies, inspectors, stagers, those who specialize in home improvement AND of course trusted Loan Officers. How do I find the right listing agent for my situation? In order to find the right listing agent for you, make sure your agent is licensed and has experience, references, and a professional website where you can learn more about them and their qualifications. Most real estate agents work with both buyers and sellers, but some might specialize in one or the other. Once you find a few agents through referrals or online research, meet with them in person to ensure they meet your needs and work well with your personality. It is also important to ask questions during your meeting with them and it’s imperative that you determine what you’re looking for in an agent so you make sure you are happy with the product being delivered. Selling a home can be stressful, especially for first-time sellers. A listing agent can help by taking on some of the burden and providing the information and resources needed to help sellers make informed decisions. We work with agents on both sides of the transaction – if you have any questions or would like a recommendation for an agent in your area, please reach out to us!
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