Mortgage Payment Components: Taxes and Insurance, Part 1

In part one of this two-part blog series, we went over some basics on the important components involved in a standard mortgage payment. While the final number involved in your monthly payment is the most important broad consideration for any mortgage borrower, understanding the various factors that contribute to this eventual tally is also a vital task.

At Altius Mortgage and our partners at Mortgage Ogden, we’re happy to help with any of these basic areas for our clients as they look to understand any part of their mortgage or home loan options. We’re proud to offer many mortgage programs specifically for first-time borrowers who have not been through this process before, and might need our assistance with some of these areas. Today’s part two of our series will go over a couple other important components of a standard mortgage payment to be aware of.

Tax Component

Another important section of your mortgage payment will be for property taxes, which are in place due to your jurisdiction and are used to fund various public services like trash collection and others. In many cases, property taxes will be collected as part of your payment each month, then held in a separate escrow account until the end of the year – this means you’re paying single payments instead of one large lump sum at the end of the year.

In addition, this escrow format usually involves the lender covering the difference if the final tax amount comes out higher than expected, then billing you for it in future payments. This also helps the borrower avoid a tax lien. For those who do not have 20% of the purchase price available for a down payment, lenders will often require this escrow format as a way of protecting them from a huge property tax bill if there’s a foreclosure. FHA loans, in addition, will require escrow accounts be used.

Insurance Payments

Finally, there are two types of insurance that might be found as part of your mortgage payment:

• Homeowners’ insurance: In many cases, homeowners’ insurance and flood insurance will be collected by lenders and placed in escrow. This may lead to more favorable terms if you agree on this. A lender cannot require you to use a particular insurer here, but they can require that such insurance be carried.
• Private mortgage insurance (PMI): In cases where you are paying less than 20% down for your home, private mortgage insurance must be maintained until a certain amount of the loan has been paid off. PMI protects the lender from potential risks.

For more on the components involved in your mortgage payment, or to learn about any of our mortgage rates or other home loan solutions, speak to the staff at Altius Mortgage today.