Understanding Your First Mortgage Payment
Your first mortgage bill can feel intimidating, but don’t worry, it’s usually not due the month immediately after closing. This is because your first month’s payment is typically paid at the closing table. As a result, your first official payment will likely be due on the first day of the second month after you close. This gives you a one-month grace period before payments begin.
For example. If you close on July 10, your first payment will be due on September 1. Always check your closing disclosure or promissory note for the exact date.
Important Note: Your lender may sell your loan to a different servicer after closing. The company you make your first payment to may not be the same as the one you make your second payment to. Be sure to check your mail for notifications about this transfer.
Your Mortgage Statement Explained
Your mortgage statement is more than just a bill. It contains a detailed breakdown of your payment and provides key information about your loan. Here are the most important terms to know:
Principal: The base amount of the loan you borrowed to purchase your home.
Interest: The cost or fee your lender charges you for borrowing the money.
Taxes: Your payment typically includes estimated annual real estate taxes, also known as property taxes.
Mortgage Insurance: If your down payment was less than 20%, you likely have private mortgage insurance (PMI) included in your monthly payment. This protects the lender if you default on your loan.
Homeowners Insurance: Your monthly mortgage payment typically includes your annual homeowner’s insurance premium, which protects you from things like natural disasters, theft, and damage.
Navigating Escrow
Escrow is one of the most asked about financial terms in real estate. While you may be familiar with the escrow account that held your Earnest Money Deposit (EMD) before closing, you now have a new escrow account for your mortgage. This account holds funds for your property taxes and homeowners’ insurance.
What is Escrow?
Your lender collects a portion of your annual property taxes and homeowners’ insurance each month and holds them in an escrow account. The lender then uses these funds to pay your bills on time when they are due. This helps ensure that taxes and insurance are always paid, protecting both you and the lender.
The Annual Escrow Review
The taxes and insurance that make up your escrow payment can change from year to year. Your lender or loan servicer will review your account annually to ensure you’re contributing enough.
- Overage: If you paid too much, you will receive an escrow refund in the form of a check.
- Shortage: If you didn’t pay enough, you can either pay the difference upfront or have your monthly payment increased over the next year to cover the shortage.
Building Home Equity and Paying Down Principal
Your mortgage is a powerful tool for building wealth through home equity, which is the portion of your home that you own. As you pay down your mortgage and as your home’s value increases, you build equity.
Build Wealth with Extra Payments
Paying extra toward your mortgage principal can help you build equity faster. This also has the added benefit of reducing the life of your loan and saving you thousands of dollars in interest over time.
You can do this by:
- Switching to bi-weekly payments, which results in 13 full payments per year instead of 12.
- Adding an extra towards your payment each month.
- Putting any unexpected funds or bonuses toward your principal.
Budgeting for the Unexpected
Beyond your mortgage payment, it’s important to budget for the unexpected costs of homeownership, such as utilities, regular maintenance, and repairs. A simple rule of thumb is to set aside 1% of your home’s value per year to cover maintenance and repairs.
For example, if your home is worth $350,000, you should aim to save $3,500 annually. This will help you avoid financial surprises and keep your home in great condition.
Our commitment to service doesn’t stop after closing. We’re always here to help you feel confident in your homeownership journey. Contact us anytime with questions about your mortgage or anything else.
