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Repayment Conditions:

The lender retains the right to reclaim and sell your home to cover any unpaid debt. Repayment involves making monthly payments encompassing principal, interest, taxes, and insurance (known as PITI).

• Principal: The total amount borrowed to buy the home. A down payment can be made to reduce the principal.
• Interest: The percentage charged by the lender for using the borrowed money.

The principal and interest constitute the majority of monthly payments in a process known as amortization. Amortization gradually reduces your debt over time, with early payments primarily covering interest and later payments contributing more to the principal.

Taxes & Insurance:

Beyond interest and principal, your mortgage payment may include funds deposited into an escrow or trust account. This money is designated for insurance and taxes.

• Taxes: Property taxes imposed by your community based on your property’s value, contributing to community expenses such as schools, infrastructure, and roads.
• Insurance: Home insurance is essential for home purchase, covering both the property and personal belongings against various losses like theft, fire, and weather-related damage.

An escrow account is commonly used when the down payment is less than 20% of the principal, as it is considered a riskier loan. In such cases, the lender establishes an escrow account to collect additional expenses, which are then factored into your monthly mortgage payment.