Team Zanet - Mortgage Brokers Serving Windsor and Essex County


Understanding the Mortgage Payment Structure

Mortgages were created in the 1930s to help people purchase homes during the Great Depression. Initially, buyers were required to put 50 percent of the cost down. As home values have skyrocketed over the years, however, and banks have become increasingly involved in providing loans, a respectable down payment today is only 20 percent—and there are many cases where purchasers pay much lower.

Most buyers today need a mortgage in Leamington when they pursue home ownership, seeking out a credible lender for a long-term, significant loan. While some people can ultimately pay off their mortgage, others may never have the means to do so. For starters, much of what borrowers contribute when starting payments is the interest rather than the principal. There are also taxes and insurance to consider.

The Components of a Mortgage

The principal payment on a mortgage is essentially the amount you borrowed upfront to purchase your home. Many people choose a fixed rate mortgage in Leamington, which means you pay the same amount each month for the duration of your mortgage. You can otherwise choose a variable mortgage in Leamington. Over time, a larger and larger percentage of your monthly payment will go toward paying off the principal amount, with less and less going toward the interest.

While interest payments are clearly a profit for your lender, it is important to realize that they risk the possibility that you will not pay them back. Interest is also the price you pay for obtaining the loan in the first place. The amount you can borrow from any financial institution
depends on the interest rates they offer, as low rates mean that the mortgage itself will be more affordable to pay off each month.

Although homeowners can pay taxes and insurance separate from their mortgage in Leamington when they purchase property, some may involve their lender in both. In this case, the financial institution from which you borrow for the purchase will likely create an escrow account where they hold monthly percentages of taxes and insurance from your mortgage payments to later pay for both on your behalf.

Homeowners are charged real estate taxes to help fund a range of services in the community, including schools and police and fire departments. The government determines what they charge you yearly, but you can include the payments with your mortgage on a monthly basis. When taxes are due, your lender would release the amount you paid—a small portion of your property tax bills—from escrow.

Once you purchase your home, you also must pay insurance premiums upon the settlement, included with the closing costs. Property insurance protects you against various disasters such as theft and fire, while private mortgage insurance is necessary when putting down 20 percent or lower (which you can remove once you reach or surpass 20 percent in equity). Similarly to taxes, your lender can keep this in escrow.

If you choose a home not too far beyond your means, and keep the same or comparable property for a long stretch, you can more realistically pay off the entire mortgage in the long run. Consulting with a mortgage broker like Axiom Mortgages before purchasing a home is a helpful way to ensure you make the smartest financial decision possible—including a fixed rate or variable mortgage in Leamington.

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