When you borrow from the bank for your home mortgage loan, you have to pay it back over time in regular monthly payments. But in a way, making your mortgage payment is like paying yourself because over time you are building equity and ultimately total ownership.
Let's look at how this works. There are four components to a mortgage payment. Principal, interest, taxes and insurance. Principal is the amount of the loan. You pay down principal over the term of your loan. Interest is the cost of borrowing money.
The amount of interest you pay is determined by your interest rate and your loan balance, and the term of the loan. Taxes are the property assessments collected by your local government. Homeowners insurance is required financial protection you must maintain in case your property is damaged by fire, wind, theft or other hazards.
Mortgage insurance could be required if you need to make a smaller down payment. This means you can borrow a larger percentage of your home's value and the insurance protects the lender if you're unable to make your mortgage payment.
It's always best to speak to your home mortgage consultant to know exactly what you need. In the early stages of your mortgage term, only a small portion of your monthly payment will go toward repaying your original principal. As you continue to make payments through the years, a greater portion will go to reducing the principal that you owe and reducing the interest, while taxes and insurance will still be required.
Understanding the components of your mortgage and how they change over time puts you in a better position to manage it throughout your loan. Your Wells Fargo Home Mortgage consultant can talk with you about how to understand your bill, how to pay your loan down faster, and how building equity can help you in the future. They are here for you no matter what your needs or questions. So enjoy home ownership as you pay your mortgage and yourself every month.
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FAQs
Your monthly mortgage payment typically has four parts: loan principal, loan interest, taxes, and insurance. Making one payment to cover all four parts means you only have to remember one due date.
What are the 4 components of a monthly mortgage payment in the correct order as used in the acronym? ›
PITI stands for principal, interest, taxes and insurance. This combination is what makes up your monthly mortgage payment.
What is not one of the components of typical mortgage payments? ›
The component of typical mortgage payments that is NOT generally included is 4) Mortgage points. Mortgage points, also known as discount points, are upfront fees paid to reduce the interest rate on a loan. When making typical mortgage payments, the homeowner usually pays 1) Insurance, 2) Interest, and 3) Taxes.
What are the components that affect the amount of the mortgage payment? ›
There are four factors that play a role in the calculation of a mortgage payment: principal, interest, taxes, and insurance (PITI). As we look at them, we'll use a $100,000 mortgage as an example.
What are the 4 C's in mortgage? ›
So, what do lenders look at when deciding to approve or deny an application? Lenders consider four criteria, also known as the 4 C's: Capacity, Capital, Credit, and Collateral. What is your ability to pay back your mortgage?
What are the 3 C's in mortgage? ›
After the above documents (and possibly a few others) are gathered, an underwriter gets down to business. They evaluate credit and payment history, income and assets available for a down payment and categorize their findings as the Three C's: Capacity, Credit and Collateral.
What is not included in a mortgage payment? ›
What's not included in your monthly mortgage payment? Utilities, homeowner's association fees, and condo association fees are not included in the mortgage payment that you pay to the lender. You're responsible for setting up your utility accounts and paying those separately.
Which of the following is not a component of a mortgage payment? ›
Answer. The down payment is not a component of a mortgage payment. A mortgage payment usually consists of the principal, interest, and taxes, with the down payment being made upfront at the time of purchase. The question asks which of the following is not a component of a mortgage payment.
What is the principal component of a loan payment? ›
The home loan principal amount is the amount of money initially borrowed from the lender, and as the loan is repaid, it can also refer to the amount of money still owed. If you avail a home loan of Rs. 50 lakhs, the principal is Rs. 50 lakhs.
What is the mortgage payment factor? ›
Factor rates work by multiplying the decimal by the entire loan amount upfront. Factor rates typically range from 1.10 to 1.50 and only apply to the original amount of money borrowed. It's a fixed cost that doesn't change throughout the life of the loan, unlike a variable interest rate loan, which can change.
How Is My Interest Payment Calculated? Lenders multiply your outstanding balance by your annual interest rate, but divide by 12 because you're making monthly payments.
What is the mortgage payment breakdown? ›
With a mortgage loan, you'll typically make just one monthly payment. However, that payment is often broken down into four components: principal, interest, taxes and insurance (PITI).
What are the four parts of the mortgage payment also called Piti? ›
If you've started to look for a mortgage, you may have run across the term "PITI." Very simply, PITI is an acronym that helps you remember the different components of a mortgage payment: Principal, interest, taxes and insurance. Combined, these are amounts you'll pay to your lender each month toward your home.
What are the four steps of the mortgage process? ›
Mortgage Approval Process. The mortgage approval process consists of four phases which are often confusing to borrowers: Pre-Qualification, Pre-Approval, Conditional Approval, and Clear to Close.
