What Do 401(k) and Mortgage Statements Have in Common?
They are both too damn hard to read and understand. Both contain dizzying sets of numbers indistinguishable from the other. And most people still don’t know exactly which numbers to focus on.
Many of us see mortgage relief in sight with the federal government’s “Make Homeownership Affordable” initiative or offers from mortgage companies to refinance.
But again, you’ve got to be able to read your mortgage statement first before you can even BEGIN to know if any of the programs will help.
So where do you start? First, wipe the dust that’s collected on the stack of unopened bills. IGNORE the credit card offers, open up one of your mortgage statements, and get comfortable.
- Mortgage Company Contact Information. You may think this is trivial but given the frequency in which home loans were commoditized and sold, you may have a different mortgage company. In fact, your original mortgage company may not even exist. Some statements will identify the loan officer who originated the loan (poor guy) along with their contact information.
- Loan Number. This is like the social security number of loans. Without it you have to answer a bunch of identifying information, most likely through one of those automated attendants that can never get your responses right.
- Interest Rate. This is the amount the mortgage company charged you for the pleasure of borrowing their money to buy your house. Its shown as a percentage of the principal (amount of the loan).
- Taxes Paid/ Escrow Balance. This shows how much property tax has been paid by the lender for the year and how much money is remaining in the escrow account. An escrow account provides the lender with the funds (padded into your monthly mortgage) to pay expenses like property taxes, homeowners insurance, and mortgage insurance.
- Total Monthly Payment. Of course you know this part. How much you’re on the hook for each month. This typically includes principal, interest, taxes, and insurance. Sometimes borrowers may decide not to “escrow” the taxes and insurance and pay them separately from the mortgage payment.
- Principal Payment. For some, this is the depressing part. This section displays the monthly dollar amount of principal (the original loan amount to purchase the home MINUS interest) paid in your monthly payment.
- Interest Payment. This is where the lender makes its money. This section displays the monthly dollar amount of interest included in your monthly payment. Interest is a fee charged for the use of borrowing money for the mortgage.
- Escrow. This section displays the monthly dollar amount sent to the escrow account in your monthly payment, if you’ve decided to have your mortgage company set aside an escrow.
Now, that wasn’t so bad, was it?