This hub “Understanding Your Mortgage Payments- Mortgage Payment Options Explained” is the fifth article that I’ve published on this platform on mortgage and all issues relating to mortgage i.e. mortgage refinancing, loans, types of mortgages e.t.c.

From the beginning, it’s quite understood that mortgage is a long term loan designed to help a borrower purchase a house. However, a financial obligation is on the borrower i.e the borrower is under compulsion t pay back the principal alongside interest payments to the lender.

Concerning your monthly mortgage payments, two significant factors are important:

1)      Size of the loan

2)      Term of the loan

Size of the loan

The size of the loan means the amount of money borrowed.

Term of the loan

The term of the loan refers to the length of time frame in which the loan is expected to be fully paid back.

Now, the issue here is this: shorter term leads to larger monthly payments and vice versa.

To buttress more on this topic, four major factors play a significant role in the calculation of a mortgage payment. They are:

1)      Principal

2)      Taxes

3)      Interest

4)      Insurance

Principal

For a borrower, a set amount of money (meant for mortgage payment) is dedicated for repayment of the principal. The principal is the mortgage loan given to you). It should be noted that the mortgage payments in the final consist basically of principal repayment as compared to a mortgage payment in the first years, which is basically of interest payments.

Interest

As a general phenomenon, higher interest rates translate to a higher mortgage payment. The interest is defined as a lender’s reward for taking a risk and loaning money to a borrower.

Taxes

In this context, one’s tax is obtained by dividing the number of monthly mortgage payments in a given year.

Insurance

 Basically, there are two types of insurance coverage on this issue:

1)      Property insurance---- this covers the home, equity from theft, fire e.t.c.

2)      PMI Insurance—This is compulsory for homeowner that paid a down payment of less than 20% of the home’s cost in order to purchase a home. PMI form of insurance empowers the lender to sell the loan to investors, should in case the borrower defaults in the loan payment.

To be continued in part 2………..