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What’s in a Monthly Mortgage Payment?

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Principal

This is the amount you borrow. On most loans, part of your monthly mortgage payment goes toward paying down your principal.

Interest

This is the cost of borrowing your principal loan amount. It’s usually shown as a percentage of your principal and goes down as the principal is paid off. The process of paying off your mortgage over time is known as amortization.

What's Mortgage Amortization

Mortgage Amortization

Amortization is what happens as you pay off a loan over time. Early on, most of your mortgage payment goes toward interest. But as your principal starts to come down, the amount of interest you pay will also go down – meaning a larger percentage of your monthly payments will go toward your principal loan amount.

Property Taxes

This tax is based on the value of your home and is usually collected by your local government once or twice a year. In some cases, you may be asked to pay property taxes every month as part of your mortgage payment using an escrow account.

What's an Escrow Account?

What’s an escrow account?

An escrow account is managed by your mortgage servicer. A portion of your monthly payments will be automatically moved to the account and the servicer will use it to make your tax and insurance payments whenever they’re due. down, the amount of interest you pay will also go down – meaning a larger percentage of your monthly payments will go toward your principal loan amount.

Homeowners Insurance

Homeowners (or hazard) insurance protects you in case of any damage to your home. You’ll usually be asked to buy insurance equal to your home’s value, but if you live somewhere that’s prone to natural disasters, you may need to buy additional policies due to higher risk.

Mortgage Insurance

Mortgage insurance from a licensed provider is usually required if you make a down payment of less than 20%. This provides coverage to the lender if you fall behind on your monthly payments or default on your mortgage.

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