The mortgage is usually paid back in the form of monthly payments consisting of interest and principal. The principal is repayment of the original amount borrowed, which reduces the balance with every payment. The interest, on the other hand, is the cost of borrowing the principal amount for the past month. Normally a monthly mortgage payment includes the principal, the interest, local and state
taxes, and home insurance. Taxes are remitted by the loan company to the local governments as a percentage of the value of the property. These tax amounts will vary based on where the borrower lives and are usually assessed each year on an annual basis. The home insurance payments go toward mortgage and hazard insurance. The property mortgage insurance (PMI) protects the lender from loss incurred if a borrower defaults, whereas hazard insurance protects both the borrower and the lender from property losses. These funds are usually held in escrow by the lender. PMI typically is not required if you put down 20% or more on your home. As long as you are not behind on payments, PMI payments are automatically terminated when either you are at the midway point of your loan in time, or when the loan-to-value (LTV) reaches 78%. You can request cancellation of PMI when you LTV reaches 80%.
