What goes into a mortgage

You may be surprised by what’s included in your mortgage payment

When you take out a mortgage to buy a home, you don’t just pay for the house itself—you also pay taxes, insurance, and interest. Here’s a look at what’s included in your mortgage payment and how these expenses help you protect your investment.

The largest part of your monthly mortgage payment is typically the principal, which is the amount you borrowed. This portion of your payment goes toward paying off the original loan amount over time.

Interest is what you pay to borrow money from a lender, and it’s typically a percentage of the principal. The interest amount on your mortgage can change over time, but your monthly payment will always include some amount of interest.

Property taxes are based on the value of your home and are generally paid to your county or municipality. Your mortgage company will likely escrow for property taxes, which means they’ll hold onto that money each month and pay the taxes on your behalf when they’re due.

Homeowners insurance protects you from financial losses caused by storms, fire, theft, and other hazards. Lenders require you to buy homeowners insurance as part of your loan agreement to protect you and their investment.

Of these four costs above, private mortgage insurance (PMI) is the one that borrowers often don’t understand very well. The vast majority of homebuyers need to finance their purchase with a mortgage, and if a home buyer is putting down less than 20% then lenders will require that the borrower pays for private mortgage insurance (PMI). PMI protects the lender in case the borrower defaults on the loan. How much does PMI cost? It depends on several factors, including the size of your down payment and your credit score.

In conclusion, be sure to ask your lender about what exactly is included in your mortgage payment. You may be surprised to find out that things like property taxes and homeowners insurance are rolled into your payment. Knowing this information can help you budget better for the future.


THOMAS CLARK | Mortgage advisor NMLS 1925192

517. 442. 4333 | tclark@mycitym.com