What’s included in my mortgage monthly payment?

Your mortgage monthly payment is made up of several components. It will more likely include the following:

• Loan principal

• Loan interest

• Property taxes

• Private mortgage insurance

Let’s break this down.
The principal is the value of the loan you received from your bank or lender and does not reflect interest or fees. If you borrowed $300,000, then your principal at the time of the loan origination was $300,000. As you make mortgage payments over the years, the principal on your statement will lessen as a portion of your payment is applied to it.

The interest portion of a monthly payment is the amount a lender charges for making the loan that was used to purchase your home. Initially, the largest part of your mortgage payment each month will be dedicated to paying interest due. However, as time passes, more of your monthly payment will go towards paying down the principal.

Real estate taxes on your home are due every year. Many times, lenders collect these taxes from the homeowner throughout the year and later they get paid out to the taxing authorities once a year by your lender. Most times, homeowner’s insurance and flood insurance (if required) will also be included in your monthly mortgage payment. Remember that you still get to choose your insurance provider!

If you are unable to put down 20% of the purchase price at closing, you may also be responsible for paying private mortgage insurance (PMI). This type of insurance may be required by the lender as it protects the lender in case you are unable to repay the loan amount and/ or default on the mortgage.