How your mortgage payments are applied
Your mortgage payment is likely the costliest bill you pay, but do you understand how that payment is applied? Your total mortgage payment can be made up of 3-5 different payments depending on your situation. Here’s what they are:
Principal & Interest (P&I)
You principal and interest payment is the amount of money that goes toward your loan amount and the interest charged on the loan.
Property taxes are required to be included in your payment. Each month when you make your payment, those funds are held in an escrow account until the due date when they are paid out to the city or town. The credit union takes care of this so you only have to worry about paying one bill rather than two. Different towns have different property tax due dates. Those could be quarterly, semi-annually, or annually.
Homeowners insurance may be required to be included in your loan as well. Depending on your type of mortgage, you could elect to pay this yourself separately. Insurance payments will also be held in the escrow account until it needs to be paid out. You may see or hear those funds referred to as T&I (taxes and insurance).
If your home is located in a flood zone according to FEMA, you will be required to have flood insurance included in your payment.
Private Mortgage Insurance
Private Mortgage Insurance, often referred to as PMI, is required if you are making a down payment of less than 20%. PMI will be automatically removed from your payment when you reach 78% Loan-to-Value, or you can write a letter of request to remove it at 80% with an appraisal.
Curtailment is any additional payment toward your principal balance after all other payments are satisfied. You would only see this on a statement if you paid more than your billed amount.
Here is an example of how you will see your mortgage payment broken down on your statements. All Property Taxes, Homeowners Insurance, Flood Insurance, and PMI are grouped together in the “Taxes and Insurance” amount. You will never see a balance under “Miscellaneous Insurance” or “Subsidy Payment.”