Principle, interest, taxes and insurance
5. Principle, Interest, taxes and insurance
Your housing costs will be made up of principle, interest taxes and insurance as far as most lenders are concerned. Principle payments reduce the amount of money left to pay back. Interest payments are the amount of money you pay for the use of the lender’s money. It the early years of a mortgage pay back, the principle payments are small and the interest payments are large. Property taxes are paid to local taxing authorities, typically to pay the cost of local governments and public schools. Property taxes may vary widely from area to area, so be sure to ask what the property taxes are. However, don’t let high taxes scare you off. Areas with high taxes can have superior school systems that are in great demand, creating high and sustainable property values in their surrounding communities. If you have children, you may find areas with high taxes and good schools cheaper than areas with low taxes and poor schools, where you wind up paying a small fortune to have your children educated at private schools. Lenders will require that you purchase property insurance to protect their interest in your home should there be a fire or some other disaster. Insurance costs can also vary widely, so be sure and inquire about the insurance costs before you buy. However, insurance costs will normally be the smallest of the components of your housing costs.
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