When you make that monthly mortgage payment on your Huntsville home every month, you are dealing with one of the largest responsibilities that you will ever have. It is therefore important to understand the key elements present in most mortgages. A little bit of knowledge can go a long way, especially when it is time to renew your loan or to refinance it. That monthly mortgage payment you remit every month includes four key elements: Principal, Interest, Taxes, and Insurance.
Principal is nothing other than the money that your lender provided to help you to buy your home. For example, if you put 20-percent of the purchase price down, the lender provided the other 80-percent. Every mortgage payment that you subsequently make will reduce the principal, or balance, that you still owe.
Interest is nothing more than the compensation that your lender gets for initially giving you all that money to help you buy your home. Whatever your interest rate, it’s important to understand that you’re only paying interest to the lender on the actual remaining balance of your loan. As a result, over time, the amount of money that goes toward reducing principal continually increases.
A smart Huntsville homeowner will always be watching to see if refinancing the mortgage could be advantageous. As you pay down the mortgage, and quite possibly as the value of your home increases, the equity in the property gets stronger and stronger. This can mean that the lender perceives less risk in loaning you money. Such a lender will be willing to do so at a better interest rate. However, many variables are involved, and it is incumbent upon any wise homeowner to seek professional advice when considering a “refinance.”
For example, there are many different mortgage products, including fixed-rate loans and variable rate loans. A good, qualified professional can help you sort through these many different loan products in search of the one that is ideal for you and your current circumstances.
The property taxes that go to your local municipality are often rolled into the monthly mortgage payment. This keeps a Huntsville area homeowner from ever getting late on the property taxes. This is because, by paying such taxes on a monthly basis, you’re essentially paying them over to the lender ahead of time.
In turn, the lender remits the money to the local governmental entity when the property taxes come due, typically every year, or every six months. In some cases, a lender will insist that you pay your property taxes in this manner. In other cases, you will have the discretion as to whether to do so. Paying these taxes yourself essentially allows you to keep more money in your pocket for a little longer period of time.
Commonly, the premium for private mortgage insurance (PMI) is included in your monthly mortgage payment. Such insurance protects the lender against default on the loan, and it is often required for you to get a loan approved. However, over time, circumstances change. For example, once you have built up enough equity in your home, a lender may no longer require private mortgage insurance. Again, good professional advice when you are refinancing can help to determine whether the time has come for you to no longer have to pay for this expensive type of insurance.
Although it is not as common, the inclusion of the premium for homeowners insurance with the mortgage payments also sometimes occurs. This is the basic insurance that any homeowner must have to cover losses in the event of fire, theft, etc. It also provides liability protection in the case of a slip or fall on your property, for example.
Understanding Home Mortgages in Huntsville, AL
By understanding the different dollar amounts that go into your monthly Huntsville AL mortgage payment, you will be in a better position to ask the right questions when it comes time to renew or to refinance your mortgage. Given the substantial sums involved, optimizing your next mortgage loan is imperative if you want to save as much money as possible.
If you’d like to learn more about home mortgages, contact our preferred lender. They will be able to assist you in any way you need. Additionally, see where your mortgage budget lies with purchasing homes in the Huntsville area: