A mortgage is a long-term loan that a borrower obtains from a bank, thrift, independent mortgage broker, online lender or even the property seller.

The house and the land it sits on serve as collateral for the loan. The borrower signs documents at closing time giving the lender a lien against the property. If that borrower doesn’t make mortgage payments as agreed, the lender can take the home through foreclosure.

Because a mortgage is such a large loan, consumers pay them off over long periods — usually 15 to 30 years but there are some programs that will allow up to 40 year amortizations right now. Your monthly mortgage payments go mostly towards interest initially and then gradually your payment will be applied towards the principal balance, slowly at first then rapidly toward the end of the loan.

What’s in a mortgage payment?
When escrow is used, a monthly mortgage payment is called a PITI payment. That’s because each one covers a portion of the following four costs:

Principal — the mortgage loan balance
Interest — interest owed on that balance
Real estate Taxes — taxes assessed by different government agencies to pay for school construction, fire department service, etc.
Property Insurance — insurance coverage against theft, fire, hurricanes and other disasters

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Depending on the kind of mortgage a borrower has, the monthly payment may also include a separate levy for private mortgage insurance (PMI) or government-backed mortgage insurance premiums.

The breakdown of each payment (the amount that goes toward principal, interest, etc.) changes over time because mortgages are based on a repayment formula called amortization. That’s a fancy term meaning the lender spreads the interest you owe on the mortgage over hundreds of payments so that the overall loan is as affordable as possible.

If you have less than a 20% down payment your loan is considered a slightly higher risk to lenders and they require you to pay something called private mortgage insurance or PMI until you reach that 80% equity position in your home through payments or home appreciation substantiated by an appraisal. You do not have the discretion of choosing your own PMI lender and the PMI does not protect you it protects the lender if you default and go into foreclosure. The bank actually only gets a small percentage of their monies back depending on the coverage required. But that 25 or 30% coverage that they get back is ususally enough to cover any shortage after a house is sold due to foreclosure.

On an FHA or Federal Housing Authority loan it is called Mortgage Insurance Premium or MIP and it is financed on top of your loan and on a VA or Veterna’s Administration loan it is called a VA Funding Fee and it is also financed on top of your loan.

Make sure you have an experienced loan officer that will take the time to explain all of this to you at application and offer you all of your alternatives. To begin the process visit www.sellmyhouse.com.