What's in a Mortgage Payment

J A C K I E W O O D W A R D / / M O R T G A G E B R O K E R / / T M G 7 8 0 . 4 3 3 . 8 4 1 2 / / I N F O @ M O R T G A G E G I R L . C A

T W E E T @ M O R T G A G E G I R L C A

What’s in a Mortgage Payment


I’m sure you know what a mortgage payment is, in the broad sense of the word, it’s a scheduled repayment plan for the mortgage you’ve obtained

on a property.

Now let’s delve deeper into what a mortgage payment amount actually includes, how payments can vary, along with how you can use your

mortgage payments to reduce your mortgage principle quicker.

I will try to cover the important details, as well as some helpful tips when it comes to understanding your mortgage payment.

J A C K I E W O O D W A R D / / M O R T G A G E B R O K E R / / T M G

7 8 0 . 4 3 3 . 8 4 1 2 / / I N F O @ M O R T G A G E G I R L . C A T W E E T @ M O R T G A G E G I R L C A

Y O U R M O R T G A G E P A Y M E N T I S C O M P R I S E D O F 2 M A I N P A R T S , P R I N C I P A L A N D I N T E R E S T .

P R I N C I P A L B E I N G T H E O R I G I N A L M O R T G A G E A M O U N T Y O U B O R R O W E D W H I L E I N T E R E S T I S T H E C O S T O F B O R R O W I N G

T H O S E F U N D S . T H E O N L Y E X C E P T I O N T O T H I S N O R M I S I N T E R E S T O N L Y P A Y M E N T S T H A T S O M E M O R T G A G E

P R O D U C T S F E A T U R E S U C H A S A H O M E E Q U I T Y L I N E O F C R E D I T .

W H A T P O R T I O N O F Y O U R M O N T H L Y P A Y M E N T A M O U N T G O E S

T O W A R D S P R I N C I P L E , A N D W H A T A M O U N T G O E S T O W A R D S I N T E R E S T I S D E T E R M I N E D B Y Y O U R R A T E T Y P E .

What is included in your mortgage payment


If you choose a fixed rate term, your mortgage payment is fixed and the percentage of your mortgage payment that goes towards interest and principle changes as the principle balance is reduced. Your mortgage professional can create an amortization scenario to show you how the

percentages change throughout the length of your fixed term.

With a lower amortization, comes a larger mortgage payment, which equates to more of your payment going towards principle, resulting in

your mortgage balance reducing faster.




With a variable rate mortgage term, the payment amount can fluctuate though the percentage of payment that goes towards interest and

principle will also change as the balance reduces.

As a rule of thumb, it can be noted that the interest portion of the mortgage is always covered first, with the remainder of the payment going

towards principle reduction.

Variable rates are especially appealing right now due to the low interest rates offered which come with the possibility of more of a mortgage

balance reduction, more on that later.




As some lenders offer the option of paying your property taxes with your mortgage, your mortgage payment could also potentially include a

property tax portion.

The lender will collect from you with every payment though that tax amount will be placed in a separate account until your property taxes are

due for the year. This amount is based on your annual property tax assessment and is charged in addition to your principal and interest

mortgage payment.



MOST MORTGAGES DEFAULT TO MONTHLY PAYMENTS, THOUGH THERE

ARE ACTUALLY A FEW WAYS YOU CAN REPAY YOUR MORTGAGE;

Payment Frequency What’s in a Mortgage Payment

MONTHLY: DUE ONCE PER MONTH, USUALLY DEFAULTS TO THE 1ST OF THE

MONTH.

SOME LENDERS WILL ALLOW YOU TO SPECIFY A DIFFERENT DAY OF THE MONTH

FOR YOUR PAYMENT TO COME OUT ONCE EACH MONTH.


SEMI-MONTHLY: DUE ON THE 1ST & 15TH OF EVERY MONTH.

NOT ALL LENDERS OFFER THIS OPTION SO

DOUBLE CHECK IN ORDER TO CONFIRM IT’S AVAILABLE TO YOU.


BI-WEEKLY: D U E E V E R Y 1 4 D A Y S , O R 2 6 T I M E S P E R Y E A R .

I F Y O U C H O O S E T H I S P A Y M E N T F R E Q U E N C Y Y O U R F I R S T

P A Y M E N T D A T E W I L L L I K E L Y D E F A U L T T O 1 4 D A Y S A F T E R Y O U R M O R T G A G E H A S C L O S E D . I F Y O U H A V E A D I F F E R E N T D A T E I N M I N D T O C O R R E S P O N D W I T H Y O U R P A Y P E R I O D S ,

A D V I S E Y O U R M O R T G A G E P R O F E S S I O N A L .

W I T H T H I S O P T I O N , Y O U C A N A L S O C H O O S E B E T W E E N R E G U L A R O R A C C E L E R A T E D P A Y M E N T S . A C C E L E R A T E D

P A Y M E N T S A R E H I G H E R A N D D I R E C T S A L A R G E R P O R T I O N T O W A R D S Y O U R P R I N C I P A L T H E R E B Y P A Y I N G D O W N Y O U R M O R T G A G E F A S T E R . L E T T H E L E N D E R K N O W W H I C H O N E

Y O U W O U L D L I K E .


WEEKLY: IS ONCE A WEEK, USUALLY A SPECIFIC DAY EVERY WEEK, LIKE EVERY

FRIDAY.

THIS FREQUENCY IS USUALLY ALSO AVAILABLE IN REGULAR OR ACCELERATED OPTIONS TOO.


IF YOU’RE THINKING OF ANY OTHER PAYMENT FREQUENCY THAN MONTHLY, INQUIRE ABOUT WHAT DAY YOUR “INTEREST ADJUSTMENT

DATE” IS GOING TO BE AS IT COULD RESULT IN AN ADDITIONAL ONE TIME OUT OF POCKET

CLOSING COST TO YOU.



Mortgage Pre-Payments

You can put your mortgage payment to work for you by utilizing your pre-payment privileges to reduce your mortgage principal faster.

The easiest way is to go with bi-weekly accelerated payments, though if

you really want to ramp up the repayment, take a look at the 2 most common solutions below:




Increase your payment amount

Most lenders allow you to increase your mortgage payment amount by 15-20% each year with no penalty due. Any amount above your minimum

payment goes directly towards your mortgage principal which will reduce it quicker, resulting in less interest charged over the life of your mortgage.

Your mortgage commitment will detail the pre-payment privileges

your lender offers and once you increase your mortgage payment, you can usually go back down to the minimum amount for any reason with a call to

your lenders customer service center or visiting your home branch.




Lump sum payments

If you don’t want to commit to a payment increase, then lump sum payments are for you when you have extra cash.

Most lenders allow up to 15-20% lump sum payment

throughout each year. Depending on the lender, that’s 15-20% of your original mortgage amount or last renewed

balance.




Your mortgage payment is more than just a way to repay your mortgage as it can also be one the biggest budget busters you have! Understanding how you can use it to your advantage is the key between those two. Once the mortgage qualifying is done, take the time to design a mortgage payment plan that is both affordable and puts you in a favorable financial position. Include your financial planner in the discussion to ensure you’re getting a well-rounded approach.

JACKIE WOODWARD MORTGAGE BROKER // TMG PHONE: 780.433.8412 EMAIL: [email protected] VISIT: WWW.MORTGAGEGIRL.CA

Do you have mortgage questions? LET’S CHAT!

What's in a Mortgage Payment

Real Estate

Transcript of What's in a Mortgage Payment