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Understanding more about your mortgage payment and overall out-of-pocket expenses can help you save money- and even reduce the term of your loan. This is arguably the biggest and most complicated financial transaction of your life and mortgage payments are very complex, with multiple parts that change over time.
The good news is you can link with someone on our team to educate you through the components of your single mortgage payment PITI and use that to potentially reduce your payment- and even the term of your loan. Here are the four parts of your mortgage payment:
This part of your payment goes to pay down your loan balance (how much of the principal you owe). If you borrow $100,000, the principal (before you make any payments) is $100,000.
(The percentage of the principal amount that you pay over the life of the loan). It’s the fee charged for receiving the money in the loan. The part of your payment that goes to interest starts out high but decreases as you pay down your principal.
(Your property tax). Wherever you live, you have to pay tax on your property—which your local government uses to fund public services such as schools, police forces, and fire departments. The amount you pay is typically a percentage of your property’s assessed value (which is usually less than its true market value). So if your property’s assessed value increases, your property tax goes up. You paid your first years’ worth of property tax as part of your mortgage closing costs.
(Your homeowner’s insurance; also called “hazard” insurance). It’s an insurance policy you pay for that protects your home and its contents from fire, theft, and other kinds of loss. You paid your first years’ worth of insurance payments as part of your mortgage closing costs.
Did you know paying PMI comes with one major benefit: the ability to buy a home without waiting to save up for a 20 percent down payment. Home prices are continuing to climb, hitting an all-time high according to the National Association of Realtors. A 20 percent down payment at these current home prices is more than $70,000, which can seem like an impossible figure for many first-time homebuyers.
Instead of waiting while saving, paying PMI allows you to stop renting sooner. Homeownership is generally an effective long-term wealth-building tool, so owning your own property as soon as possible allows you to start building equity sooner, and your net worth will expand as home prices rise.
If home prices in your area rise at a percentage that’s higher than what you’re paying for PMI, then your monthly premiums are helping you get a positive return on your investment on your home purchase.
Private mortgage insurance (PMI) may add to your monthly mortgage expenses, but it can help you get your foot in the homeownership door. When you’re buying a home, check to see if PMI will help you reach your goals faster. We can help you compare options — that way you can receive the best rate and terms for your specific financial situation.
How to stop paying PMI:
Understanding your mortgage payments will pay off significantly. Link with someone on our team to discuss your options.
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Total Quality Lending NMLS # 1933377. Licensed by the Department of Financial Protection and Innovation under the California Financing Law.
These materials are not from HUD or FHA and were not approved by HUD or a government agency.
Equal Housing Lender. Licensed by the Department of Financial Protection and Innovation under the California Financing Law, License No 60DBO-108369, Licensed by the Department of Financial Protection and Innovation under the California Financing Law, NMLS #1933377. Loans made or arranged pursuant to the Department of Financial Protection and Innovation under the California Financing Law.
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