What is the Real Cost of a Mortgage?

from servicemagic.com

The total cost of a mortgage is comprised of four main elements:

1. Principal
2. Interest
3. Taxes
4. Insurance

PITI is part of the formula that mortgage lenders use when calculating your affordability ratios. Many times home buyers ignore these additional costs when figuring how much of a home they can afford.

Principal
Principal represents the amount you borrow, which has to be repaid over time.

Interest
Interest is the cost that mortgage lenders charge for the use of their money during your repayment schedule.

Taxes
Taxes are an assessment that local governments collect on property to pay for local services. Property tax rates will vary by location and can affect your total cost and affordability.

Insurance
Homeowner's Insurance will be required to replace the value of loan in the event of a disaster such as fire, earthquake, flood, etc.

Understanding Escrow
Property taxes and insurance costs must be collected and paid when they are due.