Understanding My Monthly House Payment

Your monthly payment will be a combination of your mortgage's principal, plus interest, taxes, and insurance (PITI). Principal is the amount of money you actually borrow in the form of a mortgage. If your mortgage is for $250,000, then your principal is the same amount: $250,000. This is the amount you'd need to repay to the lender -- if the lender didn't charge interest. Interest is the money your lender charges you for the privilege of borrowing all that principal. It's expressed as an annual percentage rate. Since interest on a mortgage compounds monthly, constantly adding to itself over time, the math needed to determine your interest payment can be tricky depending on your type of mortgage loan. Click here to read more about which loans are best for first time buyers.

Typically, your mortgage payments will be mostly interest in the early days of your loan repayment. As you pay off more and more interest, you'll start chipping away more of the principal with every payment. Taxes can be a significant expense, depending on where you live and your home's assessed value. Assessment is the value assigned to a home based on a comparison of the prices of similar homes recently sold in the neighborhood.

Property taxes may be collected at the state, county, and city or town level. Property taxes vary from one area to another. When you make an offer on a home, be sure to calculate your tax rate and include those payments in your budget. Be ready to pay your property taxes upfront when you buy your home. Your lender may require you to deposit several months or a year's worth of tax payments into an escrow account when you purchase your home. Your tax payments are then deducted from this fund throughout the year.

Insurance refers to your homeowner's insurance. You will need to buy insurance when you apply for your loan to guard against potential damages to your future home.

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