In part one of this two-part blog series, we went over some basics on the various components that make up your monthly mortgage payment. There are a few such elements to be aware of, but it’s also important to note that the precise percentages you pay toward each of these can and will typically vary throughout the life of your mortgage repayment.
At Altius Mortgage and our partners at Mortgage Ogden, we’re here to help with this and numerous areas of the mortgage process, both for first-time homebuyers and anyone else on the market. While part one of our series went over principal and interest payments, the two primary areas you should be aware of, today’s part two will go over taxes and insurance payments, plus give you a quick word on how to understand the changing percentages you’ll be paying toward as you move forward through the years.
For any home that’s purchased, real estate or property taxes will be assessed by government agencies. These taxes go toward numerous public services, from police and fire departments to public schools and many others.
These taxes are calculated on a yearly basis, but for most mortgage holders, they’re paid monthly as part of your mortgage payment. This is done through the lender setting up a separate escrow account, one that collects these tax payments each month and then holds them until they actually need to be paid.
Another payment type that’s generally paid out into an escrow account through your lender is insurance payments, which come in two common types:
- Property insurance: Required for virtually all homeowners, property insurance protects the home and its contents from disasters, theft risks and other potential issues.
- Private mortgage insurance (PMI): For those who purchase a home with a down payment below 20%, private mortgage insurance is typically required to protect the lender in case of default. However, once you reach 20% equity in your home (or even 18% in some situations), you will be able to remove PMI from your payments, as risk for the lender will have dropped by this point.
As we’ve noted multiple times in this series, payments will not be the same through the life of your loan. For the first few years, you’ll pay a larger portion of interest; as your payments proceed, larger and larger chunks will be devoted to principal.
And if you want to know exactly how this works for your mortgage, you have this information at your fingertips in the form of what’s known as an amortization schedule. Given to all borrowers at the time of closing, the amortization schedule demonstrates exactly how much you’ll be paying to principal, interest and various tax or insurance payments over the entire life of the loan – it will even give you the payment numbers for 25 years from now if you’re on a 30-year mortgage. This allows for detailed financial planning years or even decades into the future.
For more on the elements of your mortgage payment, or to learn about any of our mortgage services, speak to the staff at Altius Mortgage today.