Simple Components of a Cookeville Mortgage Payment

There are a number of things you may be wondering about if you're entering the homebuying market, and one of these as you get closer to actual homeownership is what will go into your monthly mortgage payments once you begin making them. There are a few different expense areas that will typically be covered by your mortgage payment, and being aware of each of them is valuable for having proper information moving forward. 

At Primary Residential Mortgage, we're happy to assist Cookeville clients with a wide range of home loan options, from those ideal for first-time homebuyers (such as FHA loans) to numerous others, even including jumbo loans for larger homes or properties you're looking into. No matter where you land here, what will the common elements of your mortgage payment be? Here's a simple rundown.

Principal Balance

Also often referred to simply as principal, this is the original sum of money you borrowed to purchase your home. As you make payments on your mortgage, a portion of each one will go towards lowering this balance until it reaches $0.

The amount your principal begins at will depend on a variety of factors, starting with the actual home price -- but also including the down payment amount you make, the type of mortgage you're getting, and other details. How quickly you can pay it down will also depend on these elements, as well as how much money you're putting towards it each month.

Interest

The second primary component of your monthly mortgage payment is interest. This is the fee charged by your lender for borrowing the money needed to finance your home. In Cookeville, you'll find that most mortgages are going to be set up on a 30-year repayment plan, which means you'll be making payments for three decades unless you sell or refinance your home sooner.

With a 30-year mortgage comes lower monthly payments since they're spread out over such a long time -- but it also means more interest will accrue over the life of the loan. You can save money in interest fees by refinancing to a shorter-term mortgage later on or making additional payments on top of your regular monthly amount.

There are other factors that will also influence your interest rate, many of which involve your personal finances. If you have a great credit score and a low debt-to-income ratio, you're likely to get a lower interest rate than someone with poorer credit or more debts.

Escrow

While escrow isn't necessarily required for every mortgage, it's a common component in many payments. This portion of your payment goes into an account set up and managed by your lender or loan servicer, and it's used to cover things like property taxes and homeowners insurance.

The idea behind escrow is that these are annual (or semi-annual) expenses that would otherwise be due all at once, which can be difficult for many homeowners to come up with. When you have an escrow account, your lender collects a little bit extra each month and puts it towards these bills when they're due.

At the end of each year, your loan servicer will send you an escrow analysis statement that outlines how much was collected and what payments were made. If there was money left over, you'll get that back -- and if there was a shortage, you may have to pay it all at once or have it added to your mortgage balance.

Taxes

You'll also have to pay property taxes as a homeowner, and these can be included in your mortgage payment as well. This will depend on your particular loan agreement, though, and some homeowners choose to pay their property taxes separately.

Insurance

There are a couple types of insurance you may be responsible for as a homeowner, one of which is homeowners insurance. This type of policy covers your home and belongings in case of damage from things like fires or severe weather, and it also provides liability coverage in the event someone is injured on your property.

You may also be required to carry private mortgage insurance (PMI) if you're making a down payment of less than 20 percent on your home. This type of insurance protects your lender in case you default on your loan, and it's typically required until you've reached at least 20 percent equity in your home.

HOA or Condo Fees

Another element that may or may not be included in a given mortgage payment, and which depends on whether you live within an HOA or condo community, is a monthly fee for these services. If you do have such a fee, it will be included in your mortgage payment along with the other items we've discussed.

For those unaware, the acronym HOA refers to a homeowners association, which is a group that helps manage and maintain a community of homes. They typically collect monthly or annual fees from residents to put towards things like landscaping, common area maintenance, and security.

If you live in a condo rather than a single-family home, you may have similar expenses but they'll be known as condo fees. These can cover things like building insurance, water and trash service, and elevator maintenance.

As you can see, there are a few different things that go into the average mortgage payment each month. It's important to be aware of all these factors so you can budget appropriately and understand what to expect when making your payments.

For more on this, or to learn about any of our mortgage rates or quality mortgage services in Cookeville, speak to the team at Primary Residential Mortgage today.