What makes up my mortgage payment?

Prinicple, Interest, taxes and Insurance are the main things that make up your mortgage payment.

There are other things as well.

Monthly mortgage payments used to just be principal and interest. However, borrowers often pay portions of the homeowners insurance and property taxes along with principal and interest which then make up their monthly payment.

If you chose to include your property taxes and homeowner's insurance in your mortgage payment, your lender will set up an escrow account and pay them when they are due.

The type of mortgage you have can determine what makes up your mortgage payment. Specifically, if your mortgage is interest only for a set period, then your payment would be only interest. If you have taxes and insurance escrowed, then you would pay interest, taxes and insurance.

There may also be a Private Mortgage Insurance (PMI) payment included with your monthly payment. PMI is a third party insurance on conforming conventional loans that exceed 80% of the value of the home.

Interest only loans require significantly less dollars than a fully amortized loan, because instead of paying principle and interest on a mortgage, these loans only require you to pay the interest monthly. The drawback is that the principle amount of your loan will never shrink.

» DISCLAIMER: The information contained in this article on 'What makes up my mortgage payment?' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.