If you’re looking to purchase you’re first home and are considering different mortgage loan options, you’re probably heard the terms principle and interest already.
If you’re wondering what the difference between the two terms are and what they mean exactly, here is a quick explanation
The principal of the loan is the amount you will actually borrow in order to make your purchase.
The interest of a loan is the amount that is charged over time and is based on the interest rate that was offered when the loan was made.
It’s common for a loan to have a term of 15-30 years. This is what’s referred to as the loan’s term.
The majority of your monthly payment will be comprised of the combination of the principal and the interest. The total monthly interest and the total monthly principal is collected and applied over the life of your loan. This is done using a process that is referred to as amortization.
Using amortization, your payments will mostly be put towards paying the interest early in the loan term. Later in the life of the loan, more will be used towards paying the principle.
Your payment is not limited to just the principal and interest. There are also taxes and insurance to consider. It may be helpful to remember the parts of the loan with the acronym PITI, which stands for Principal, Interest, Taxes and Insurance.
If you’re considering purchasing a home and are looking for loans in Joplin, MO, we’d love to talk with you. Contact our office and schedule your consultation today!