Mortgage Services

Your mortgage payment is a complicated mix of percentages, interest rates, and possibly taxes and insurance. Understanding what makes up different types of mortgages and payments can help you see where all your money goes each month (or twice a month in the case of a bi weekly mortgage payment).

The Components Of A Mortgage

The main component of a mortgage payment is the principle. This is the chunk of money you needed to purchase a piece of property. Added to the principle is the interest. The interest is the money paid to the lender to compensate him for lending the money. In addition, sometimes added to the principle and interest are property taxes and homeowners insurance. If you have all 4 components, the monthly payment is known as PITI (principal, interest, taxes, insurance).

What Are The Types Of Interest?

The interest on your mortgage payment can be fixed or adjustable. Your parents probably had a fixed rate loan. A fixed rate will stay the same over the life of the loan. Your first payment will be the same as your last, no matter what interest rates are doing all around you. An adjustable rate is any number of available loans where the interest rate changes according to current rates. One type of adjustable rate is an ARM loan. This type of loan has a fixed rate for a predetermined amount of time, 5 years is common. After this "introductory period", your rate will adjust either up or down according to the current rates. This type of loan may be ideal for someone that buys a home not planning to stay for more than 5 years. They can get out before the rate change.

A couple of payment options that have gotten a lot of attention lately are bi weekly mortgage payments, or an interest only mortgage payment. Banks are offering bi weekly payments to help people that get paid twice a month. Instead of a large payment once a month, you can pay half every two weeks. Unfortunately, banks charge setup fees to provide this arrangement. You can probably do this or some variation of it yourself for free and save the fees. Interest only payments are great for someone that has a set income during the year and also expects a large bonus check each year. With an interest only loan they can pay the interest during the year, then make a large principle payment with their bonus. Will either of these work for you? Talk to a lender or broker to see if you are a fit.

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