One thing I find myself explaining to many first time home buyers is their mortgage payment, not only how much it is but what it consists of. So I put this together in an effort to explain the 3-4 components of every mortgage payment.
Principle and Interest (P&I)
This is the portion of your mortgage payment that pays the balance down. The principle goes to your loan, the interest to the lender.
This is the portion of your loan that goes to pay real estate taxes. These taxes are given to the municipality you live in to pay for roads, services and other things
Insurance covers two things, first your homeowners insurance. Homeowners insurance is like car insurance for your house, in case you have a incident that requires you use it.
The second type of insurance can be optional for some loans. It’s called mortgage insurance, this insurance protects the lender in case you default on payments. Because of this insurance homeowners are able to attain homes with much smaller down payments.
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