With New Hampshire home prices continuing to rise, most people need a mortgage to buy a home. A mortgage is an agreement between you and a lender that allows you to borrow money to purchase or refinance a home and gives the lender the right to take your property as collateral if you do not repay the money you’ve borrowed plus interest. So now that you know what a mortgage is, what makes up your mortgage payment?
Principal, Interest, Taxes, and Insurance (PITI) are the components of a mortgage payment.
Principal
Your principal balance is the total amount you borrowed to purchase your New Hampshire home. For example, if you buy a home using a $250,000 loan, your principal balance is $250,000. The balance decreases as you make loan payments over time.
Mortgage Interest
What Is Mortgage Interest? The term mortgage interest is the interest charged on a loan used to purchase property. The amount of interest owed is calculated as a percentage of the total amount of the mortgage. Mortgage interest compounds and may be either fixed or variable. The interest rate is the cost you will pay each year to borrow the money, expressed as a percentage rate. It does not reflect fees or any other charges you may have to pay for the loan. An annual percentage rate (APR) is a more comprehensive measure of the cost of borrowing money than the interest rate. The APR reflects the interest rate, points, fees, and other charges you pay to get the loan. For that reason, your APR is usually higher than your interest rate.
Taxes
You’ll be required to pay monthly property taxes to your local government based on your home’s location and assessed value. Property taxes fund school districts, community services, and other community projects. Remember that property taxes may change when you have your loan, thereby changing your monthly payment.
Insurance
Homeowner’s insurance protects you if your home gets damaged during a covered incident. Incidents may include fires, natural disasters, or burglary. Although no law legally requires homeowner’s insurance, most mortgage lenders require homeowner’s insurance. Homeowners can choose to pay a monthly premium for homeowner’s insurance coverage or pay the total amount of the policy upfront.
While PITI makes up the monthly mortgage payment, sometimes borrowers must get private mortgage insurance if they put down less than 20% of the home’s sale price. But, again, a professional loan officer can advise you on the cost and specifics of PMI.
A firm understanding of PITI should help you know how much you can afford for your New Hampshire home. Often, you can qualify to borrow a larger loan amount, but you need to consider all your other expenses and lifestyle to know what you can genuinely afford. Our loan team can help you make those calculations, and you can also use our mortgage calculators to get a general idea before your consultation.
Find out what you can afford and get pre-approved today.
