Mortgage Payments Explained

Owning your own home is quite a bit different than renting one. When you rent, you simply write a check or hand cash to your landlord. Many of your utilities are included in that amount, with the exception of probably your electric bill, and maybe cable/internet. When you own a home though, you have to pay a mortgage, which isn't as simple as making one payment. Your Lake of the Ozarks mortgage lender is here to explain the different aspects of your monthly mortgage payment:

Components of a Mortgage Payment

The primary factors in determining your monthly mortgage payment are the size and terms of the loan. Once those factors are set, you'll be able to determine the monthly payment. A mortgage payment typically consists of four parts known as PITI: Principal, Interest, Taxes and Insurance.

1. Principal - The principal is the actual amount that you borrowed. With each monthly mortgage payment, you will be paying this balance down. Fixed-rate loans are structured so that the amount of principal paid starts out small and increases with each monthly payment. This means that the mortgage payments in the beginning years consist mostly of interest, those payments later on will consist mostly of principal.

2. Interest - Interest is the "cost" of borrowing the money (principal). The interest rate on a mortgage has a direct relationship with the amount you pay each month. A higher interest rate means higher monthly mortgage payments. Therefore, for most home buyers, a higher interest rate reduces the amount they're able to borrow, while a lower interest rate increases that amount.

3. Taxes - While real estate taxes are calculated by the government on an annual basis, you usually pay them as part of your monthly mortgage payment. Most lenders will require an escrow account in which 1/12 of your annual property tax bill will be collected with each monthly mortgage payment. The funds will be held in the escrow account until the tax bill is due.

4. Insurance - Like the real estate taxes, insurance payments are also paid monthly and held in escrow until the bill is due. There are two types of insurance that can be included in your monthly mortgage payments: homeowners insurance and private mortgage insurance (PMI). The first type protects the home and its contents from fire, theft and other disasters. The second type protects the lender in the event the borrower is unable to repay the loan. PMI is mandatory for homeowners who purchase a home with less than a 20% downpayment. The PMI portion can be dropped once the homeowner has at least 20% equity built up in the home.

Before you choose to make the financial investment of purchasing a home at the Lake of the Ozarks, it's important to understand all of the components that go into a mortgage. As your mortgage lender, I am dedicated to working with you every step of the way. I'll discuss financing options, offer competitive interest rates and back it up with the first class service you deserve. For all of your Lake of the Ozarks home loan needs, give me a call at 573-746-7211.

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Michael Lasson

Sr. Residential Mortgage Lender

NMLS #: 493712

2265 Bagnell Dam Blvd, Suite B

PO Box 1449

Lake Ozark, MO 65049

Direct:  (573) 746-7211

Cell: (573) 216-7258

Fax:(573) 693-9141

Email:  mlasson@fsbfinancial.com

**The postings on this site are my own and do not necessarily represent First State Bank of St Charles’s positions, strategies, or opinions.