Your Mortgage Payment

Understanding Your Monthly Mortgage Payment

More Than Principal & Interest

Your monthly mortgage payment may include more than the amount you borrowed and the interest charged on the loan.

Depending on your loan and property, your total monthly housing payment may include:

Principal — The portion of your payment that reduces your loan balance.

Interest — The cost of borrowing the money.

Property Taxes — Taxes assessed by your local taxing authorities.

Homeowners Insurance — Insurance protecting your home against covered losses.

Mortgage Insurance — May apply depending on the loan program, down payment, and loan-to-value.

Flood Insurance — May be required when the property is located in certain flood zones or when otherwise required.

HOA or Condominium Fees — These aren't usually included in your mortgage payment, but lenders generally consider applicable association fees when determining qualification.

PITI — What Does It Mean?

You may hear the term PITI during the mortgage process.

P — Principal
I — Interest
T — Taxes
I — Insurance

Understanding the total housing expense, rather than looking only at principal and interest, gives you a much better picture of what a home may actually cost each month.

How Does an Escrow Account Work?

An escrow account is an account maintained by your mortgage servicer to help pay certain property-related expenses on your behalf.

When an escrow account is established, a portion of your monthly mortgage payment is collected and set aside for expenses such as:

• Property taxes

• Homeowners insurance

• Flood insurance, when applicable

• Certain other required property-related expenses

When those bills become due, the mortgage servicer generally pays them from the escrow account.

Why Is Money Collected for Escrow at Closing?

At closing, you may see an initial escrow deposit included in your cash-to-close amount.

This money helps establish the escrow account with enough funds to pay upcoming tax and insurance bills when they become due.

The amount collected can vary depending on:

• The closing date

• When property taxes are due

• When insurance premiums are due

• The amount of the tax and insurance bills

• Applicable escrow requirements

This is important because the money placed into escrow is not simply another lender fee. It is being collected to pay future property expenses.

Can My Mortgage Payment Change Because of Escrow?

Yes. Even with a fixed-rate mortgage, your total monthly payment can change if your property taxes or insurance premiums change.

The mortgage servicer generally performs an escrow analysis periodically to determine whether the amount being collected is sufficient.

If taxes or insurance increase or decrease, the escrow portion of your monthly payment may also change.

When Is My First Mortgage Payment Due?

Mortgage payments are generally paid in arrears, meaning the interest portion of a payment covers interest that has already accrued.

Because prepaid interest is typically collected at closing for the period between closing and the end of that month, your first regular mortgage payment is commonly due on the first day of the second month following closing.

For example:

Closing: October 15
Prepaid interest: October 15–31
First mortgage payment: December 1

This is why borrowers often hear that they may “skip a payment” after closing. Technically, the payment isn't being skipped—the timing of mortgage interest and the prepaid interest collected at closing creates the gap before the first regular payment.

Who Do I Make My First Payment To?

After closing, you'll receive information explaining where and how to make your mortgage payments.

Your loan may be serviced by the lender that originated it, or servicing may be transferred to another mortgage servicer.

If servicing is transferred, you'll receive notices explaining:

• The name of the new servicer

• When the transfer takes effect

• Where future payments should be sent

• Available payment methods

• Contact information for questions

Always follow the payment instructions provided by your mortgage servicer rather than relying on wiring or payment instructions received unexpectedly by email.

What Happens to My Escrow Account If My Loan Is Transferred?

If servicing of your mortgage is transferred, the servicing of the escrow account generally transfers with the loan. The new servicer becomes responsible for collecting the escrow portion of your payment and paying applicable tax and insurance bills from the account.

After Closing: What Happens Next?

Once your mortgage closes, there are a few things you'll want to keep track of as you transition into making your regular mortgage payments.

Watch for Your First Mortgage Statement
Your first statement will show your payment amount, due date, loan number, and instructions for making your payment.

Confirm Your Mortgage Servicer
The company that originated your mortgage may not always be the company that services it. If servicing is transferred, you should receive written notification with the new servicer's information.

Consider Automatic Payments
Once you've confirmed your mortgage servicer and payment information, you may be able to set up automatic monthly payments through the servicer.

Keep an Eye on Your Escrow Account
If your mortgage includes escrow, review your statements periodically to make sure property taxes and insurance are being paid as expected.

Watch for Your Annual Escrow Analysis
Your servicer will generally review the escrow account periodically. Changes in property taxes or insurance premiums can cause your monthly payment to increase or decrease even when you have a fixed interest rate.

Keep Your Insurance Current
Make sure your homeowners and, when required, flood insurance remain active. If you change insurance companies, provide the updated information to your mortgage servicer.

One Important Reminder

Your interest rate may be fixed, but your total mortgage payment isn't necessarily fixed.

Changes in property taxes, homeowners insurance, flood insurance, mortgage insurance, or other applicable property-related expenses can affect your total monthly housing expense.

Questions After Closing?

My assistance doesn't have to end when your loan closes.

If you have a question about your first payment, escrow account, mortgage statement, or something you received from your servicer, feel free to contact me.

CONTACT GIDGET

Protect Your On-Time Payment History

Your mortgage payment is one of your most important monthly financial obligations. Once you receive your first statement and confirm your mortgage servicer, consider setting up a system that helps ensure your payment is made on time every month.

Set Up Automatic Payments
If your mortgage servicer offers automatic payments, you can have the payment withdrawn from your bank account each month.

Set a Backup Reminder
Even with automatic payments, consider adding a recurring calendar reminder a few days before the payment date so you can make sure sufficient funds are available.

Watch for Servicing Transfers
If your loan is transferred to a new servicer, review the transfer notices carefully and update any automatic-payment arrangements as needed.

Review Your Mortgage Statement
Don't ignore your monthly statement just because your payment is automatic. Check the payment amount, escrow activity, and any notices from your servicer.