What Charges Make Up My Mortgage Payment?
Monthly payments are usually composed of three portions: the principal, the interest, and escrow (typically grouped together).
The principal goes toward paying down the balance of the loan. Any money paid toward your principal increases the amount of equity you have in the property.
The interest goes to your lender as a fee for borrowing money.
The escrow covers your property taxes and homeowners insurance premiums.
This portion is only included in your payment if you have an escrow account.
Scroll below to see details on “escrow accounts!”
- Credit Score. Higher credit score = lower rates
- Home Location. Interest rates vary from state to state. California may have very different rates than Florida, for example
- Home Price and Loan Amount
- Down Payment Amount. The larger the down payment, the lower the rate.
- Loan Term. The term of a loan is how long you have to pay the loan off. Usually shorter terms = lower rate, but higher monthly payments.
- Interest Rate Type. Fixed interest rates don’t change over time. Adjustable rates have an initial fixed period, but that rate might increase significantly later on.
- Loan Type. Including: conventional, FHA, USDA, VA, and “non-agency” loans.
- WHERE YOU GET YOUR MORTGAGE. At fiber, our prorietary pricing algorithim instantly checks eligibility and returns the absolute best option every time.
What are Mortgage Points?
Points, also known as discount points or mortgage points, lower your interest rate in exchange for an upfront fee.
By paying points, you pay more upfront, but you receive a lower interest rate and therefore pay less over time.
Paying mortgage points is also called “buying down the rate,” which can lower your monthly mortgage payment.
One point costs 1 percent of your mortgage amount (or $1,000 for every $100,000). Sometimes “buying points” can happen in half a point increments, as well.
Mortgage points can be a good choice for someone who knows they will keep the loan for a long time.
Mortgage points would be paid at closing, in addition to closing costs and down payment.
What is PMI?
PMI stands for Private Mortgage Insurance. It’s usually required with all loans whose down payment is less than 20%. You can CANCEL the PMI (ie: stop paying for it) once your loan balance drops below 80% of your original home value.
WHEN YOU GET A MORTGAGE THROUGH FIBER, we’ll send you an email on the exact date this is scheduled to happen to remind you to request a PMI cancellation!
What is MIP?
MIP is short for Mortgage Insurance Premium. If you get a government sponsored loan (FHA, VA, USDA, etc), you will be required to pay MIP at funding and in addition to your interest rate, for the life of the loan.
What are Costs to Close, or Closing Costs?
When you are buying a home, you generally pay several costs associated with that transaction.
Generally, these are fees paid to third parties like appraisal and home inspection companies, title companies, and taxing authorities.
Closing costs are typically around 3% of the purchase price of the home. Sometimes closing costs can be paid by the Seller, and sometimes the cost to close is funded by a specialty program you may qualify for. (Ask us for details!)
Cost to close is separate, and an additional amount than your down payment.
Closing Costs + Down Payment = Total Due at Closing
What is Escrow?
An escrow account is set up by your mortgage lender to pay certain property-related expenses.
The money that goes into the account comes from a portion of your monthly mortgage payment.
Many lenders require that you pay your property taxes and home owners insurance using escrow, so they can make sure that the bill gets paid.
Your mortgage servicer will manage the escrow account and pay these bills on your behalf.
Escrow accounts basically consolidate several homeowner “fees” to come out of one account versus several accounts and different payees
What is APR?
An annual percentage rate (APR) is a broader measure of the cost to you of borrowing money, expressed as a percentage rate.
The APR reflects not only the interest rate but also points, mortgage broker fees, and other charges that you pay to get the loan.
Think of APR as the single number you can compare across lenders to understand the cost of the mortgage.