4 Things You Can Learn from Your Mortgage Statement
March 21, 2013
Most of us, when we buy homes, use mortgages to make the purchase. However, it’s easy to lose track of how your mortgage payment breaks down, and what you’reÂ really paying unless you look at your mortgage statement.
Here are some things you can learn from your mortgage statement:
1. How Much of Your Payment Goes Toward Interest
You might be surprised at how much of your payment is going toward interest, especially at the beginning of your loan. A look at your mortgage statement can help you see how much the principal has been reduced by, and how much of your payment is being spent just to finance your mortgage. Somehow it seems more real when you see how little equity you are building in the initial years of your home loan.
2. When You Can Stop Paying PMI
In a more indirect way, you can learn when you can stop paying PMI. When your loan-to-value ratio drops to 80%, you can stop paying PMI. Pay attention to your loan balance. While your lender should take the PMI off automatically, sometimes you need to be on top of things to make sure that you are saving the money you should be.
3. How Much is Being Held in Escrow
Part of many mortgages is an escrow account. Money that you pay each month is held in a special account that is used to pay property taxes and insurance. If part of your payment goes to escrow each month, you know that your lender is taking care of making property tax payments and insurance premiums when they come due.
At the end of the year, the account is often “settled up.” If you owe more, due to insurance premium increases or property tax hikes, you are sent a bill for the difference, and your monthly payment might go up. If your costs have decreased, you are sent a check for the difference.
4. Your Interest Rate
Don’t forget that you can learn your mortgage interest rate by looking at your mortgage statement. You can compare your rate to the national average, and decide whether or not you need to refinance. The general advice is to refinance if you can do so at a rate that is at least 1% lower than your current rate. Keep an eye on the situation so that you know how to proceed.
What’s Not on Your Mortgage Statement: Mortgage Pay Off Amount
You might think that the loan balance you see on your mortgage statement is the amount you pay off, but it’s not. In fact, most mortgage statements explicitly state that the amount shown isÂ not the pay off amount. If you want to know your pay off amount, you need to ask for it.
Mortgage interest is paid in arrears, meaning that this month’s mortgage payment covers last month’s interest. When giving you a pay off amount, interest is often expressed on a per-day basis. So, you can see how much interest you owe each day if your pay off isn’t made by a certain date.
When requesting a mortgage pay off amount, make sure you look at the date in question. Most lenders will tell you the date through which the pay off is good for. Once you get beyond that date, interest is added to your total.
What have you learned from looking at your mortgage statement? Leave a comment!
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