Financially Fearless: The LearnVest Program for Taking Control of Your Money by Alexa Von Tobel

Author:Alexa Von Tobel [Von Tobel, Alexa]
Language: eng
Format: mobi
ISBN: 9780385347624
Publisher: Crown Publishing Group
Published: 2013-12-30T14:00:00+00:00

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FEARLESS LESSON How Mortgages Are Structured

With a mortgage, you’ll pay the principal, interest, taxes, and insurance—all of which are commonly referred to as PITI. Note that paying taxes and insurance separately from your mortgage will mean a lower mortgage payment. Just remember that it’s up to you to save that money month to month so you can pay the annual bill when it comes! Banks largely prefer to collect the tax and insurance money in an account held by a third party (called escrow) because they pay only a little to maintain the account and have access to those funds. This is called “impounding” and is designed to protect you from having to pay a large property tax or insurance bill all at once. Here’s how each component works:

ESCROW. A bank account held by a third party to keep money safe before a deal is finalized or “closed”; also used for holding payments earmarked for annual expenses.

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