When purchasing a home, no one really expects you to have the full price in cash. So in order to afford your home, it is necessary to get a mortgage, or a loan that a lender or bank provides to help you finance your purchase. Since this purchase will most likely be one of the biggest financial investments you’ll ever make, it is vital to fully understand all of the elements that make up a mortgage.
Broken down, a mortgage payment is made up of the principal, interest, taxes and insurance, or the PITI.
Principal is the balance (minus down payment) that was borrowed in order to purchase your home.
Interest is what the lender or bank chargers you to use the money you borrowed. Interest is usually expressed as a percentage called an interest rate.
Taxes are the property taxes you pay as a homeowner.
Insurance includes property insurance, which covers your home and personal property against losses, and private mortgage insurance. [Link to page on private mortgage insurance]
Buying a home can be stressful, but it doesn’t have to be. Be prepared and research the various factors that can affect your mortgage before purchasing your home. Click here for a mortgage payment calculator.
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