How Mortgages Work
A mortgage is a loan specifically used to purchase real estate. Unlike standard personal loans, mortgages are secured by the property itself. Most mortgages run for 15 or 30 years.
Components of a Mortgage Payment
A complete monthly payment is often referred to as PITI (Principal, Interest, Taxes, and Insurance):
- Principal: The portion of your payment that goes directly to pay down the balance of the loan.
- Interest: The interest charged by the bank.
- Taxes: Annual property taxes assessed by your local government, split into 12 monthly payments.
- Insurance: Homeowner's hazard insurance required by lenders to protect the property against damages.