When you buy a house, your monthly mortgage payments go toward both your loan balance and other costs, like interest, insurance, and taxes.

You can expect your monthly payment to cover:

  • Principal: This is part of your payment that goes straight toward your loan balance. Due to how loans are amortized, you usually pay less toward your principal at the beginning of your loan’s life and more at the end of it.
  • Interest: Interest is what you pay the lender for borrowing the funds, and you’ll pay more toward this cost at the start of your loan than at the end of it. Your interest rate will determine how much you’ll pay here.
  • Escrow costs: Escrow accounts are often used to store funds for future home insurance premiums, property taxes, and mortgage insurance. Your servicer will then use that money later when those bills come due.
  • Insurance: Like taxes, insurance can be escrowed into your mortgage payment to make sure that you are covered in the event of an issue with your property. Insurance amounts can also vary year to year based on any claims that you have or changes in coverage. Be sure to work with your insurance agent to have the best rates and coverage available for your property.

Additional Mortgage Payment Pieces

  • Depending on your situation and the loan program you used when buying or refinancing your home, you may have a few additional pieces to your mortgage payment.
  • PMI: Private Mortgage Insurance (PMI) is added to your mortgage payment if you are borrowing more than 80% of the home’s value at time of purchase. This insurance covers your mortgage lender in the case that you default on your loan. With certain loan programs the PMI will go away when you reach 20% equity, however, that is not the case with all programs.
  • HOA and Other Fees: Depending on the type and location of your property, you may have additional fees to pay every month such as an HOA (Homeowners Association) fee or Condo Association Fee. These types of fees typically cover amenities and services for your property and can vary greatly. Make sure you take these fees into consideration when looking at your monthly mortgage budget.