What are the mortgage payment factors?


Talking about structure of the PITI payment, there are four mortgage payment factors that have to be taken into account.

Almost everybody buying a house has to use a mortgage for the purpose. The mortgage loan consists of loan principal and interest, paid to the lender. Also, there are certain taxes and insurance charges involved with homeownership. They vary for different regions and loan amounts.

The Mortgage Payment Factors - PITI

Principal - this is the loan you are taking from the lender. Normally, lenders like loans with lower loan to value (LTV) ratio. That is, if a house costs $200,000 and you are able to put down $10,000 your loan LTV will be 95% with 5% down payment. In that case, your mortgage payment will include around 0.75% private mortgage insurance (PMI).

Interest - this is the cost for borrowing money from the lender. If you have 700 FICO and can do full documentation you are eligible for the best interest rates. If your score is somewhere around 600 and below, you are likely to get subprime rates and conditions for your loan. The interest rate very much depends on the credit score factor when computing the mortgage payment. The lower the credit score, the bigger the loan, the less loan documentation (reduced or No Doc) and the longer the mortgage period (15 to 50 years) - the higher the interest rate the lender will charge.

Taxes and insurance are mortgage payment factors that can't be controlled much by the borrower. Property taxes depend on the property value and vary by state; insurance can be homeowners insurance (with general, hazard and liability coverage) and private mortgage insurance (PMI). PMI depends on the loan LTV - if the loan-to-value ratio is over 80%, PMI is usually required - or the lender may offer to charge you a higher rate instead. Taxes and insurance are usually collected and paid by the lender through an escrow account. Borrowers sometimes can negotiate to take care of taxes and insurance on their own.

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