It is useful to understand components of Franklin TN monthly mortgage payments for budgeting purposes. The acronym PITI is often used to remember the items included, which are principal, interest, taxes, and insurance. Not all loan payments will include every one of these items. It may vary based on your specific program.
Components Of Monthly Mortgage Payments
Paying Down Principal
Principal is the balance of a loan. For a typical mortgage, a portion of the monthly payment is allocated towards lowering the principal, however there can be exceptions. In the first few years of paying a loan, only a small portion of the payment actually goes towards principal, but this improves over time.
Interest is the amount charged by mortgage companies for use of the money they lend. The interest rate is normally a yearly rate but billed in monthly increments according to the balance of the loan. Based on the type of loan, the rate may stay the same for the entire life of the loan or it can fluctuate at certain time frames.
Taxes are levied by Franklin TN based on the assessed value of a property. The amounts are calculated annually but traditionally due in installments. Overdue taxes will be a lien on a property and take priority over mortgage liens. Many banks will, as a result, ask homeowners to put aside money into an escrow account to ensure that the bills are paid. Funds are collected monthly by the lender as part of the regular monthly payment. The lender then pays the taxes directly instead of waiting for the homeowner to do so. It is a method of protecting their investment.
There are different types of insurance for a mortgage. Homeowners insurance is generally mandated whereas mortgage insurance depends on the specific program. Both can be part of recurring mortgage payments.
Homeowners insurance protects against hazards such as fire. Lenders require this insurance since the home is collateral on the loan. Policy premiums are payable annually and many will want funds be put into escrow (similar to property tax). They will then submit payments to the insurance company directly to ensure the policy does not lapse.
Mortgage insurance is common for financing with low down payments. It protects the bank should a borrower stop making payments. Lenders expect that they will not recover the full amount owed to them if it forecloses, so the mortgage insurance covers some of that. Although it benefits the mortgage company, it is charged to the borrower.
Understanding Franklin TN Monthly Mortgage Payments
Not all mortgages are structured the same and as a result not all Franklin TN monthly mortgage payments will include all of the items above. There can be other monthly charges such as HOA fees, which are not escrowed by mortgage companies but are a significant factor in estimating total monthly housing expenses. Keep in mind that final figures are determined by a specific home and interest rate, so any preliminary estimates are likely to fluctuate.
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