Morgage Loan

By: EconomyWatch Content   Date: 17 December 2009

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A mortgage loan is extended to a homebuyer to enable him to pay for the purchased property. The borrower can then repay the borrowed money, along with the interest and fees, to the lender as per the agreed payment schedule. The rights of ownership of the property remain with the lender until the mortgage loan is paid off. In case of default, the lender may sell off the property to make up for the loss incurred by extending the loan.

 

The borrower can make mortgage loan payment on a weekly, bi-weekly or monthly basis to pay off the mortgage loan. The mortgage payment amount depends on the size of the loan, its type and interest rate.

 

Morgage Loan: Payment

 

A mortgage payment is made up of the principal, interest, taxes and insurance, collectively called PITI. Here are the details:

Principal: This is the main part of the mortgage payment that goes towards repaying the borrowed money. A borrower can build equity through principal payments. By making larger payments, a borrower can gain the ownership of the property sooner. The type of mortgage one opts for influences the payment amount. For instance, if a mortgage is taken for a period of 30 years, you will be making smaller principal payment. Moreover, if you opt for an interest-only mortgage loan, you are not required to pay towards the principal during the initial years.

Interest: This part of mortgage payment is paid towards interest charges. Factors influencing the interest amount are the rate of interest, loan term and the structure of payments.

 

Taxes: Taxes in mortgage payment may cover property tax obligations towards the city, county, state, or country. A borrower may choose not to include tax payment in his mortgage and pay tax on quarterly basis instead. However, if one has to pay taxes on monthly basis one can save money by adding tax payments to mortgages.

Insurance: It refers to private mortgage insurance (PMI). A lender may ask for insurance cover for loans if a borrower pays only 20% as down payment. Should a borrower defaults on loan, the lender can recover the losses through insurance.

Some mortgage payments do not include all parts of PITI and comprise payments to principal and interest only.


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