Mortgage insurance is necessary, as it protects your mortgage lender from losing out on their investment in the event that you default on your loan. Your mortgage insurance can vary depending on which program you chose in taking out a loan and the amount of your initial down payment. Most insurance companies that offer homeowners insurance are usually paid twice a year. When you take out a mortgage, your lender will take a month’s worth of your annual mortgage payment each month to continue coverage with homeowners insurance. To ensure that you are covered, your closing costs will include a year’s worth of homeowners insurance payments. This amount is usually kept in your escrow account.Īlthough it is usually listed as just “Insurance” on your mortgage statement, homeowners insurance protects you in the event that your home suffers damage, such as from a fire. One month’s worth of your annual property taxes is included in each of your monthly mortgage payments. Below, we will detail what your escrow account is made up of and how it appears on your statement.Īs a homeowner, you have to pay property taxes. You can find the terms of these charges and fees in your mortgage statement. Your escrow account consists of additional charges and fees. To determine your estimated escrow, check your Loan Estimate Guide and locate the section called “Projected Payments.” What is Included in Escrow? This is essentially an approximation of your monthly property taxes and homeowners insurance. Moreover, it’s possible that you will get a refund on your escrow balance shortly after paying off your loan. If you’re short, you will have the option to pay a lump sum to recover your escrow balance. Remember, your escrow account should be sufficient in covering your homeowner’s insurance and property taxes. If your escrow balance drops below its recommended amount, your mortgage lender is likely to increase the mortgage payments that you are responsible for each month. The line item “Escrow” is the monthly amount that you owe.Īs per the RESPA (Real Estate Settlement Procedures Act), the minimum escrow balance that you should have ought to equal twice the amount of your monthly escrow payment. Laws dictate that a lender is allowed to collect, at closing, 2 months’ worth of your estimated yearly insurance payments and property taxes.Īfter closing is completed, you will have to remit one month’s worth of the total annual amount along with every monthly payment toward your mortgage. This is money that is put aside each month for a third party to use on your behalf in making payments toward your home insurance premiums and property taxes. Late fees, insurance payments, deferred interest, and things of that nature may be present in the final amount owed.Įscrow has a very specific purpose. With that being said, it’s important to remember that other charges and fees may be included in the total amount needed to pay off your loan. As such, it goes toward repayment to your mortgage lender. Interest is the percentage that is charged to your loan balance. Interest is the missing component to your mortgage principal that tells you the total amount that you will be paying back. As you will discover in the “Interest” line below, you should plan on the total amount owed being greater than your principal balance. The reason that your principal mortgage doesn’t include interest is that interest continues to be collected all the way until closing. For that, you will need to locate the line item listed as “Interest.” As such, your mortgage principal does not include any interest. It’s important to understand that this is the amount of money owed that you borrowed on your home. Once you have identified your line items, read on to find out what each of them means. There should be several key items, including principal and escrow. In looking over your mortgage statement, you should see a breakdown of all of your charges. But do you understand what these are? If you have any confusion over your mortgage, you’re not alone, and because of that, the finance experts here at Seek Capital are ready to help clear things up so that you have a firm grasp on the matter. If you have taken out a mortgage, you have likely seen terms like principal and escrow. Much more than a simple house payment, mortgages include taxes and fees that need to be considered. Regardless of which type of payment you make on your mortgage, you know it’s a significant amount of money.
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