When you buy a home, your monthly mortgage payment is usually more than just principal and interest. Understanding what is included in a mortgage payment helps you budget accurately and avoid surprises. The four main parts are often called PITI: principal, interest, taxes and insurance.
The short answer: a mortgage payment typically includes principal, interest, property taxes, homeowners insurance and possibly mortgage insurance and HOA fees. Use our mortgage calculator to estimate the principal and interest portion.
The parts of a mortgage payment
1. Principal
The principal is the part of your payment that goes toward paying back the amount you borrowed. In the early years of a loan, a smaller part of your payment goes to principal. Over time, as the loan balance drops, more of your payment goes to principal.
2. Interest
Interest is the cost of borrowing the money. Your interest rate and loan amount determine how much interest you pay each month. In the early years, most of your payment goes to interest; later, more goes to principal.
3. Property taxes
Your local government charges property taxes based on your home's assessed value and local tax rates. Lenders often collect these taxes as part of your monthly payment and hold them in an escrow account, then pay the tax bill when it is due.
Property taxes can change over time if your home's assessed value or local tax rates change. Learn more in our article on property taxes and homeowners insurance.
4. Homeowners insurance
Homeowners insurance protects your home and belongings against covered losses. Lenders usually require you to have insurance and often collect the premium as part of your monthly payment through an escrow account.
5. Mortgage insurance
Depending on your loan program and down payment, you may pay mortgage insurance. This protects the lender if you stop making payments. Mortgage insurance works differently for conventional, FHA and other loans. Ask your loan officer how it applies to your loan.
6. HOA fees
If your home is in a community with a homeowners association, you may pay HOA dues. These are usually paid separately from your mortgage payment, but they are part of your total monthly housing cost.
A transparent illustrative example
These numbers are for illustration only and do not represent a rate quote, a loan offer or a guarantee of any kind.
Suppose you borrow a loan amount at a fixed interest rate for 30 years. Your monthly principal and interest payment is calculated from the loan amount, the rate and the term. Add your estimated property taxes and homeowners insurance, and possibly mortgage insurance, to see your total monthly housing payment.
Your lender gives you the exact numbers in your Loan Estimate and Closing Disclosure.
How an escrow account works
An escrow account is a holding account your lender uses to pay your property taxes and insurance on your behalf. Each month, part of your mortgage payment goes into escrow. When the tax or insurance bill is due, the lender pays it from the account.
Escrow makes it easier to budget for large annual bills by spreading the cost across the year. Not every loan has an escrow account; some borrowers pay taxes and insurance directly.
Why your payment can change over time
Even with a fixed-rate loan, your total payment can change if:
- Your property taxes increase after a reassessment
- Your homeowners insurance premium changes
- Your mortgage insurance is cancelled or changes
- Your escrow analysis adjusts the amount collected
Frequently asked questions
Is my mortgage payment just principal and interest? Often no. Most mortgage payments also include property taxes and homeowners insurance, and possibly mortgage insurance and HOA fees.
What is PITI? PITI stands for principal, interest, taxes and insurance, the four main parts of a typical mortgage payment.
Can my payment go up if I have a fixed rate? Yes. Even with a fixed interest rate, your taxes and insurance can change, which can change your total monthly payment if you have an escrow account.
What is an escrow account? An escrow account is a holding account your lender uses to collect and pay your property taxes and insurance on your behalf.
Ready to estimate your payment?
Use our mortgage calculator to estimate your monthly principal and interest payment, then get a free quote for a full picture.
You can also call Alex Al-Ammar at (313) 992-9898 or email Alex@vestalending.com.
This article is for general information only. It is not legal, tax or financial advice. Loan programs, rates and requirements depend on your credit, income, property and lender. Figures are illustrative only. Speak with a qualified professional about your individual situation.
