What Does a Mortgage Actually Cover?
Life's Biggest Purchase – a mortgage is a loan to finance your home, most likely the largest debt you'll take on in your lifetime. But once you have a mortgage, what exactly does it cover?
Your mortgage principal is the balance you owe for your home. This number is determined by how much mortgage you take out and how much you contribute with your down payment.
For example: if you get a mortgage for $150,000 then your principal balance is $150,000. However if you get a mortgage for $150,000 but put down $5000 for your down payment, then your principal balance would be $145,000.
Mortgage interest is the amount you pay in interest to the lender who holds your mortgage.
Interest and principal will comprise the majority of your mortgage payments. When you begin paying your mortgage, the majority of your monthly payment will be going towards interest. However, as the mortgage continues to be paid off, the monthly payment will slowly switch to principal and the amount going towards your interest will decrease.
A majority of lenders will require you to have homeowners insurance in order to receive a mortgage from them. And you should want to as a homeowner, since this is a great investment towards Life's Biggest Purchase. It can protect you from unpreventable situations, such as natural disasters, fire and theft.
Property taxes are an inevitable part of being a home owner. After an assessment by a government-appointed inspector, your property will receive an appointed value. A flat rate percentage of this value will determine your property taxes, which can vary depending on where you live. Property taxes generally go towards financing the cost of your community, such as schools, roads and other needs. Even after your mortgage is paid off, you will still be required to pay property taxes.
Still wondering about what a mortgage covers? One of our home loan experts would be happy to answer your questions.