Your biggest monthly bill is probably your mortgage. You may structure all of your other payments around getting the mortgage paid each month. Arguably, your most important bill, your mortgage represents home ownership. Understanding the components of your mortgage statement, how to pay, when to pay and what to pay, will make mortgage paying smooth sailing.
Understanding Your Payment
A mortgage payment often contains multiple components. The payment may consist of principal balance, interest, escrow and miscellaneous fees. The principal balance is the amount of your mortgage. The interest is the interest charged on the principal. The escrow payment goes towards an escrow balance that pays your taxes and homeowner’s insurance. Additionally, you may pay a mortgage insurance premium if you owe more than 80 percent of the original value of your loan. Other fees include service or late charges.
How to Pay
Depending on your lender, mortgage payment methods may include paying online, by check by mail, check by telephone, electronic funds transfer or in person. Choose a method that suits your bill paying style. Scheduling monthly electronic funds transfer, where the payment is debited from your bank account on the same day each month, is a good option if you tend to be careless about paying bills on time. If you maintain an escrow balance, send your tax and insurance bills to the mortgage lender to pay.
When to Pay
Most mortgage payments are due on the first of the month. A grace period of 15 days allows you to make the payment before the 16th of the month before the payment is late. Paying your mortgage timely is important for many reasons. First, you will maintain a good credit history of regular payments. Second, it will build your credit profile and increase your credit score. Lastly, if you miss a payment, your mortgage company will likely impose a heavy late fee. Defaulting a mortgage has grave consequences to your credit and living arrangements.
The mortgage statement provides a breakdown of mortgage charges. You can see exactly how much of your payment goes towards the principal balance, the escrow balance, the interest and other miscellaneous charges. You can choose to pay a different amount than the total due. You can overpay or skip late and service fees, catching up on them later. If you pay more towards the principal, you’ll end up paying your mortgage off faster and saving thousands on interest charges. After an escrow balance review, the lender may request you build up the escrow through additional payments or a lump sum.
Francine Richards is a licensed multi-state insurance agent with years of human resources and insurance industry experience. Her work has appeared on Blue Cross Blue Shield websites and newsletters, the Houston Chronicle and The Nest. Richards holds a Bachelor of Arts in communications from the University of Maryland.