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What’s in a Monthly Mortgage Payment?

Your monthly mortgage payment is made up of 4 different parts - principal, interest, taxes and insurance. We've broken down each one to help you understand where your money is going.

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.



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.


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.

Related Topics

Calculate your monthly mortgage payment

Get a sense of what your monthly mortgage payments could look like.

Learn More

Learn about closing costs

Find out about the most common closing costs and when you’ll need to pay them.

Learn More

Find out how amortization works

Amortization is an important home term, meaning paying off a loan over time.

Learn More

Find the mortgage option that’s right for you.  

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