Home Buyer’s Guide Part 9

Managing Your Mortgage

The mortgage payment you make to your lender each month will go to paying back the amount you borrowed to buy your house

How your monthly payments break down

The mortgage payment you make to your lender each month will go to paying back the amount you borrowed to buy your house (generally referred to as the principal), plus the interest that the lender charges for the loan. If you have mortgage insurance, which is generally required for FHA and other loan types with down payments below 20%, your monthly payment will typically include this as well.

To see how the payments are broken down, take a look at your mortgage statements. They will show the amount of each payment going to principal, interest, and mortgage insurance (if applicable). At first the majority of each payment will go towards paying down the interest on the loan. But as time goes by a higher percentage of each payment will go to paying down principle. This means that in the beginning you build equity more slowly, but over time your equity will grower more quickly.

If your loan includes an escrow account, a portion of your monthly payment will go into that account. The escrow account is used by the lender to pay your homeowners insurance and property taxes, so the amount added to your payment for the escrow account will depend on your taxes and insurance premiums. Every year your lender will reassess your taxes and insurance premiums to make sure they are collecting the right amount of money, and adjust your monthly payment if they need to collect more or less.

Writing a check

When will you make your first mortgage payment?

You will have between one and two months from your closing date until your first mortgage payment is due. The exact amount of time depends on where in the month your closing date is, because your first mortgage payment will typically be due on the first day of the month following the month after closing.

So for example, if your closing date is on May 15th, you first mortgage payment will be on July 1st. At closing you’ll pay a per diem interest fee to cover the days of the month that the closing falls in, so in this example that per diem interest payment will cover May 15th through May 31st. Your payment for June will be due on July 1st. So a closing date earlier in the month will give you a bit more time between closing and your first mortgage payment, which can be helpful if you have some overlap where you are still paying rent on your previous place after you closing date.

Handling a late mortgage payment

In the event you are a few days late with your mortgage payment, you probably won’t have to pay a penalty. Most lenders have a grace period, usually around two weeks, where they won’t charge a late fee for a late payment. But if your payment comes after the grace period has expired, you’ll most likely have to pay a penalty – and late payments will hurt your credit score.

What to do if you are going to miss a mortgage payment

Hopefully when you started the process of buying a home, you made sure to shop within your budget, and had some additional savings set aside in case of unforeseen financial troubles. But unexpected circumstances like job loss or health problems could still come up.

If you run into some financial hardship and know you are going to miss a mortgage payment, it’s important to contact your lender immediately. Your credit score will take a beating if you miss multiple payments, but that’s only the beginning. Missing payments can lead to you defaulting on your loan, and possibly losing your home. So if you are having trouble making your payments, contact your lender to see if they might be able to create a payment plan to help you get back on track and avoid a default.

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