What is Included in a Mortgage Payment?

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Whether you are preparing to buy your first home or have been paying your mortgage for years, it is important to know exactly where your money is going. Here are the four components that make up your monthly mortgage payment:

Principal

The principle is one of the main parts of your mortgage payment. This is the original amount you borrowed from a lender to pay for your home, which you pay back each month in your mortgage payment.

Interest

You will also see interest included in your mortgage payment. This is a percentage rate charged by the lender for lending money to you. Your interest rate is set, or “locked,” during the loan origination process. Interest is paid in addition to your principal.

Taxes

Your monthly mortgage rate may fluctuate due to the third component of your payment, taxes. Taxes vary based on the value of your home and your local tax policy and are included in many monthly mortgage payments, if you opt for an escrow. Your lender is required to tell you your monthly property tax rate breakdown within your statement.

Insurance

Lastly, you will most likely see insurance included within your mortgage payment, if you opt for an escrow account or put less than 20% down. Homeowner’s insurance can be affected by high crime rates or recurring natural disaster areas, such as fire or flooding. Most homeowners are required by their lender to carry homeowner’s insurance until the mortgage is paid off.

Knowing these four components of your mortgage payment will help you better understand your statement each month. Have more questions about mortgages? Contact the professionals at Home Point Financial today!