Types of Mortgage Payments

First a brief explanation of what a mortgage payment is. The word mortgage has the root idea to die. This refers to the amortization (same root idea) of long term debt - to kill off your debt.

A fully amortized payment will pay the interest due and an amount applied to the principal balance. As the principal balance is lowered, the next month's interest due is less. This means that the next month's payment will have less interest paid and more is applied to principal reduction.

A negative amortized payment does not pay the interest due and rather than reduce the principal balance, it actually adds the unpaid interest to the existing balance.

The principal and interest portion of the payment is called PI. Many mortgages add an escrow for taxes and insurances to the monthly payment. This is then called PITI.

For some loan programs mortgage insurance is also part of the PITI payment.

Payment types can be designed to fit each individual borrower's short term and long term goals.  Typically, a fixed rate payment is a good choice for borrower's who plan to remain in their loan long terms, or who do not want to risk interest rate increases.

Other payment types include adjustable rate (ARM) loans , hybrid ARM's, balloon payments, Interest Only payments, and negative amortization payments.

The Federal Reserve booklet on adjustable rate mortgages can be found by clicking here.

This section also has information about Mortgage Insurance and ideas about how to eliminate mortgage insurance.