The tangible balance owed by an individual on their home loan is the principle. This balance portion will decrease the total amount of debt balance. At the start of the repayment process, only a small bit of the monthly loan repayment is put toward the principle, as the majority goes to towards the interest. However, throughout loan maturity, this changes.
Another factor, as just mentioned, is the interest. Although some are able to write off interest as a tax deductible, many are not as lucky. For these people, it is imperative to stay head of the repayment of the loan schedule, as to not accrue more interest that will need to be paid off over a long time period.
A portion of the monthly payment will go to pay real estate taxes unless they are paid for separately from the loan. A majority of loan companies opt to pay the taxes on the behalf of the borrower. This protects the investment the company made.
Lastly, there is the insurance section. Because it is put into escrow together with real estate taxes, if the taxes are part of the monthly payment, so will insurance be. It can include any private insurance if necessitated by the lender.
These four factors are determined by the PITI mortgage calculator. It is imperative that any calculation includes these four aspects or a proper estimate will not be determined. The only time this calculation method is not usable is if an individual selects to not escrow their real estate taxes and insurance. As well, interest-only loans do not factor properly into the calculation and another calculation will be required.
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