What Is A Minnesota
Home Mortgage Made Up Of?

Everyone knows that a mortgage is made up of different components. Every time you send in your monthly check, a little piece codes towards the principal balance of the loan, some goes towards the interest on the loan, but where does the rest go?

Most Minnesota mortgages are based on what's called PITI, or Principle, Interest, Taxes and Insurance.

We already talked about principal and interest, how much will I need to pay in taxes and insurance? These are more great questions for your lender, but allow me to simplify what he or she will tell you.

Taxes are roughly based on the amount of the purchase price of your new home. The larger the value of your home, the more taxes, you will pay. And the mortgage companies roll your taxes into your mortgage, so that you aren't surprised a couple times a year with a big tax bill.

Insurance is the other amount that will be included as part of your mortgage. To get a mortgage in the first place, you will be required to purchase a minimum amount of hazard insurance.

What you choose over and above this minimum amount, will contribute to how much insurance you're actually paying.

The greater the coverage, the smaller the deductible, the greater the cost. If, for a down payment, you are putting less than 20%, you will also have something called PMI. This stands for Private Mortgage Insurance. Once someone puts 20% down or more, the bank sees you have some skin in the game. The low 20% down and you are at greater risk of defaulting on the loan.

The less money down, the greater the risk. So to offset this risk, the bank charges and additional PMI. It's basically insurance that says you won't default on the loan.

The limit of the PMI is based on the percentage down and the loan. It may exist for a limited amount of time, say five years, or when equity in your home reaches at least 20%.

For more information on this, please visit your favorite local Minnesota lender, credit union or bank.