Mortgage Loan Information

When you take out a mortgage there are a number of different calculations. All of the terms and agreements are covered by the lender. Things to consider are the payments, interest rate, principal balance, and finance charges. Before you take out a mortgage review the terms and agreements from several lenders to see which is the most cost effective. When you understand all of the calculations you will have an idea of what your true cost of borrowing is.

To calculate the interest for an interest only mortgage loan you take the interest rate divided by 360 times 30 days in the billing cycle times the balance. If you have a mortgage loan in the amount of $75,000, with an interest rate of 6 percent your monthly interest payments will be $375.

If you have an escrow account with your mortgage chances are your mortgage company is paying your taxes and insurance. When ever you make a payment a portion goes to principal, interest and the remainder goes to the escrow account to cover your taxes and insurance. If your annual insurance payment is $1,400 you can expect $116.66 to go towards the escrow account. If your annual tax bill is $2,500 you can expect $208.33 to go towards the escrow account. This happens every month until your mortgage company receives the bill for your taxes and insurance.

An escrow analysis is performed every year. This determines if there are any discrepancies with the escrow account. Sometimes there is a shortage and once in a while there could be an overage. If property taxes increase, during the year, from $2,500 to $3,000 there will be a shortage in the escrow account because $250 should be the amount going to the escrow account instead of $208.33. The adjustment won't take place until the tax bill is received and an escrow analysis is completed.

When it is time to pay the taxes even though there is not enough money in escrow account the mortgage company will mail a check for the full $3,000 to pay the taxes. If there was only $2,500 in the account and $3,000 is mailed there will be a $500 shortage. To make up for the shortage a borrower will see her payments increase by $41.66, ($500/12 = $41.66), for a full year. The following year the mortgage company will make the adjustment and the correct amount will go towards the escrow account each month which is $250.

If the loan is fully amortized you subtract the interest payment from the payment to get the principal payment. With a payment of $600 and interest in the amount of $375the principal payment would be $225.

Interest accrues on the unpaid balance. Every time a payment is made the balance gets smaller because of the principal payment therefore the amount of interest will be different every month. If you take a look at an amortization schedule for a 30 year mortgage it will chart out in detail how much of each payment goes to interest and principal for the entire term of the loan. At the end of the term after all payments have been made the loan should be paid in full.

http://www.easycalculation.com/mortgage/interest-only-mortgage.php

source: http://www.schousing.com/library/homeownership/What%20is%20an%20escrow%20analysis.pdf