Posted by Elizabeth Dennis on December 20, 2009 | No Comments
PITI – More than your Mortgage Payment
During your home buying travels, you may have seen the letter combination of P-I-T-I or heard it spoken as “pity”. Â Many would define PITI as their “mortgage
payment.” Â However, it is more than that. PITI actually represents four components due each month with regards to your mortgage loan.
P is for Principal
Mortgage principal is the actual dollar amount of your loan. Â Your principal was calculated by sutracting your down payment from your offer amount. Â Each month, a
portion of your principal is paid, gradually bringing down the amount you owe. Â In the beginning, you’ll notice the amount of your monthly mortgage payment that
goes toward principal is very small. Most of your payment will consist of interest (more on interest in a bit). Â However, as time goes on and your principal balance
decreases, your principal repayment amount will grow each month.
I is for Interest
There is no such thing as free lunch and rarely a mortgage loan with no interest. Â Mortgage interest is the extra money you will pay for the privedge of borrowing
money for your new home. Â The monthly mortgage payments early on in your loan will consist mostly of interest; as much as 80%. Â It can be quite disheartening as
your see that your principal balance barely moves but the amount of interest paid adds up very quickly. Â The good news is that, Â in most cases, Â all your mortgage
interest paid can be deducted from your federal income taxes.
T is for Taxes
Your local government (municpal or county level) will levy taxes on your new home. Â This tax is typically called “property tax.” Â Your annual propery tax amount due
is calculated using the appraised value of your home. Â Although your tax bill will be due once a year, you mortgage lender will put aside money each month into an
escrow account; a type of savings account. Â The money will come directly from your mortgage payment and will be used to pay your taxes when due. Â For more about
escrow, view our prior post: Escrow Account – An Introduction for the First Time Home Buyer.
I is for Insurance
It is unlikely you will be able to secure a mortgage on your new home without taking out a homeowners insurance policy. Â As it did with your property taxes, your
mortgage company will put aside money into escrow each month to pay your insurance premium when due. Â And you guessed it, this money will come from your monthly
mortgage payment.
During your home buying travels, you may have seen the letter combination of P-I-T-I or heard it spoken as “pity”. Â PITI represents four individual components which together make up your monthly mortgage payment.
P is for Principal
Mortgage principal is the actual dollar amount you will borrow from your lender.  Your principal will be calculated by subtracting your down payment from your offer amount on your new home.  Each month, a portion of your principal is paid, gradually bringing down the amount you owe.  In the beginning, you will notice the amount of your monthly mortgage payment that goes toward principal is very small. Most of your payment will consist of interest (more on interest in a bit).  However, as time goes on and your principal balance decreases, your principal repayment amount will grow each month.
I is for Interest
Mortgage interest is the extra money you will pay for the privilege of borrowing money to purchase your new home.  The monthly mortgage payments early on in your loan will consist mostly of interest, as much as 80%.  It can be quite disheartening when you see that your principal balance will barely move but the amount of interest paid will add up very quickly.  The good news is that in most cases, all the interest you paid can be deducted from your federal income taxes.
T is for Taxes
Your local government (at the municipal or county level) will levy taxes on your new home.  This tax is typically called “real estate tax” or “property tax.”  Your annual real estate tax amount due will be calculated using the appraised value of your home.  Although your tax bill will be due once a year, your mortgage lender will put aside money each month into an escrow account; a type of savings account.  This money will come directly from your mortgage payment and will be used to pay your taxes, by your lender, when due.  For more about escrow, view our prior post: Escrow Account – An Introduction for the First Time Home Buyer.
I is for Insurance
It is unlikely you will be able to secure a mortgage on your new home without taking out a homeowner’s insurance policy.  As with your property taxes, your mortgage company will put aside money into escrow each month to pay your home insurance premium when due.  And you guessed it; this money will come from your monthly mortgage payment.
Posted by NewBuyer on December 20, 2009 | No Comments
An insightful look at seven myths of homeownership. One being: “lenders share your personal financial information with other companies.” Each myth is dispelled with helpful facts. From the resource: “How lenders assess mortgage applications has changed a lot in the last 20 years. What closed the door to homeownership then may not be a factor today.”
Source: Freddie Mac
Read More About Home Buying at Newbuyer.com
Posted by NewBuyer on December 16, 2009 | No Comments
A must-read primer on the 1% loan origination fee commonly applied to home mortgage loans. Learn exactly what the origination fee covers and the pros and cons of paying the fee upfront vs. spreading it over the cost of the loan. A real-life example of both scenerios is provided making the concept very easy to understand. Armed with this knowledge, the resource states how easy it is to negotiate a reduced rate on your mortgage.
Source: Own the Dollar
Read More About Mortgage Negotiation at Newbuyer.com
