Home Buyer Programs: Break-down of a Mortgage Payment
A mortgage payment typically consists of principal and interest; some people also pay escrow for property taxes and insurance. There may also be an additional charge for PMI or private mortgage insurance.
Most people are surprised at how much of their payment is applied to interest and how little is applied to principal. In fact, the largest part of your mortgage payment is likely to be interest early in the loan.
How it Works
Your mortgage payment break-down is always based on your principal balance; if you purchase a home and your beginning mortgage balance is 0,000, the interest rate is 7.5% and your monthly payment is 0.00 then your first payment will be applied as follows:
5 is interest
$ 75 is principal
Calculated as follows:
Mortgage balance (0,000) multiplied by interest rate (0.75) = ,500 to get annual interest. ,500 divided by 12 = 5 to calculate interest for one month.
The new principal balance is reduced by the applied to principal, leaving a balance of ,925. Each month’s mortgage payment is calculated based on a lower principal balance; therefore, less interest is charged each month.
Equity
When you pay down the principal balance on your mortgage, you are building equity in your home. Some homeowners choose mortgages with shorter terms and larger payments to build equity faster.
Considering the amount that is applied to interest early in the game, many homeowners choose to make larger principal payments as soon as they can to reduce the loan balance. Shorter loan terms are not for everyone; be sure to talk to your real estate agent and loan officer about what options are available to you and which one would suit your individual needs.
Mark Goedert of Goedert Real Estate specializes in working with first-time homebuyers. He assists his clients in choosing the right home and the financing that works best for them. Home buyers who work with a Goedert agent are well prepared to make great decisions based on advice from an experienced real estate professional. Visit http://www.under100000realestate.com/ to learn more.
First Time Home Buyer Programs
Mark Goedert of Goedert Real Estate specializes in working with first-time homebuyers. He assists his clients in choosing the right home and the financing that works best for them. Home buyers who work with a Goedert agent are well prepared to make great decisions based on advice from an experienced real estate professional. Visit http://www.under100000realestate.com/ to learn more.
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