What are the components of a mortgage payment?



What are the components of a mortgage payment?

A mortgage payment is typically made up of four components: principal, interest, taxes and insurance. The Principal portion is the amount that pays down your outstanding loan amount. Interest is the cost of borrowing money.

Is homeowners insurance included in a mortgage payment?

Like property taxes, homeowners insurance payments are typically held in an escrow account, and then paid on your behalf to the insurance company. Two main types of insurance can be included as part of your mortgage payment.

How much of a mortgage payment goes toward repaying the principal?

In the early stages of your mortgage term, only a small portion of your monthly payment will go toward repaying your original principal. As you continue to make payments through the years, a greater portion will go to reducing the principal.

What determines the amount of interest you pay on a mortgage?

The amount of interest you pay is determined by your interest rate and your loan balance. Taxes are the property assessments collected by your local government. Lenders typically collect a portion of these taxes in every mortgage payment and hold the funds in an account, called an escrow account, until they are due.