Ask The Loan Man

Mortgage Payments

You’re probably curious why we’ve created an entire section about mortgage payments.

However, since a mortgage payment is one of the major side affects of purchasing real estate with a home loan financing program, we thought it would be important to highlight a couple topics and related articles about mortgage payments that may impact your monthly budget.

Mortgage Payment Basics:

Just in case your first mortgage payment comes due before you get your first payment coupon in the mail, there should actually be a temporary payment coupon included with your closing documents.

Your mortgage payment is 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, especially within the first 8-12 months of closing on a new loan.

When you receive your first mortgage bill, there will be a few numbers that add up to your total payment:

Principal –

This is the portion that goes towards paying down your balance. An Amortization Schedule will break down the exact amount of each payment that is being applied to the principal and interest.

Interest

The interest payment is essentially the amount you’re paying the bank over time to borrow the principal balance.

Depending on which loan program, interest rate and closing cost scenario you chose, the amount of interest due every month may vary.

Taxes -

Real Estate Taxes can either be included (Impounded) in your monthly payment (PITI), or paid by the homeowner separately.

Certain government loan programs or high Loan-to-Value (LTV) mortgages require that taxes and insurance be included with the total mortgage payment.

Either way, it’s important to make sure you ask your loan officer and/or closing agent during the final loan docs signing to clearly explain what’s included in your monthly mortgage payment.

Insurance

This is your hazard insurance (Fire), which protects your home and belongings.  While there are many ways to save money on your property insurance, it’s important to know and trust your insurance agent so that you can be fully aware of what’s covered in your policy. Some homeowners shopping strictly on price may unknowingly leave valuable personal items without protection just to save an extra $15-$19 a month.

Mortgage Insurance –

This can come in a few different forms, depending on whether you have an FHA loan, VA, Conventional, Jumbo

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 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.

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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 low enough on certain other loan programs, 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?

The remaining reserves are generally refunded back to the homeowner.

Q:  Can I set up an escrow account later?

Yes, you can request an escrow account at anytime.  Keep in mind that you’ll have to deposit at least 12 month’s of hazard insurance, as well as around 6 month’s of tax payments in the escrow account to get it established.

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