Most people think of a mortgage payment as one big number due each month. In reality, it is made up of several pieces that all serve a purpose. When you understand what you are paying for, you can plan with confidence, ask better questions, and avoid surprises later.
Here is a straightforward look at what goes into a typical mortgage payment and why it matters.
The Four Core Parts of a Mortgage Payment
Most mortgage payments include four main components, often referred to as PITI:
- Principal
- Interest
- Taxes
- Insurance
Each plays a different role in your overall payment.
- Principal
Principal is the amount you pay toward the original loan balance. Each monthly payment reduces that balance a little more, which helps you build equity. Early on, a smaller share goes to principal and more goes to interest. As time goes on, that balance shifts.
- Interest
Interest is the cost of borrowing money. It is calculated based on your remaining loan balance, so the interest portion is larger at the start of your mortgage and decreases as your balance gets smaller.
- Property Taxes
Property taxes are set by your local government. Most lenders include these taxes in your monthly mortgage payment and place the funds in an escrow account. The lender then pays the tax bill when it is due so you do not have to manage a large lump sum.
Since tax assessments can change, your monthly payment may adjust from year to year.
- Homeowners Insurance
Homeowners insurance protects your home from risks like fire, theft, storms, or other damage. Lenders require it to safeguard the home’s value. Insurance premiums are often collected monthly and held in escrow.
If your insurance company changes your premium, your mortgage payment can change as well.
Optional Add On: Mortgage Insurance
Some borrowers also pay mortgage insurance, which protects the lender in case you stop making payments. This can include:
- Private mortgage insurance for borrowers who put less than 20 percent down on a conventional loan
- Mortgage insurance premiums for FHA loans
- Insurance tied to certain low down payment programs
Some types of mortgage insurance can be removed later once you reach a certain equity level.
What Is Not Included in a Mortgage Payment
Your mortgage payment covers a lot, but not everything. Here are common costs homeowners need to budget for separately.
HOA or Condo Association Dues
If you live in a condo, townhome, or a community with a homeowners association, those dues are usually paid directly to the association. They are not typically part of your mortgage payment unless your lender has set up a specific arrangement, which is rare.
Utilities
Electricity, gas, water, sewer, and trash services are billed separately. These can vary by season and location, so keeping track of average costs helps with budgeting.
Maintenance and Repairs
Routine upkeep like lawn care, HVAC servicing, gutter cleaning, and home repairs are not included in your mortgage payment. Setting aside funds each month can help you stay ahead of unexpected expenses.
Optional Upgrades or Service Plans
Security systems, internet service, appliance protection plans, smart home subscriptions, and cable or streaming services all fall outside your mortgage payment and are managed separately.
Understanding what your mortgage does and does not cover helps create a complete and realistic monthly budget, especially for first-time buyers.
Why This Knowledge Matters
Knowing how your mortgage payment breaks down gives you more confidence and control. You will understand why your payment may shift over time and where you may have opportunities to save. You will also be able to plan for the additional costs of homeownership that are not part of your mortgage bill.
Final Thoughts
A mortgage payment has several moving parts, but once you understand what each piece does, the entire process becomes clearer. If you want help reviewing your mortgage payment or you are planning to buy and want guidance before you start, I am here to make it simple and stress free. Reach out anytime.
The opinions expressed within this article may not reflect the opinions or views of CrossCountry Mortgage, LLC or its affiliates. All loans subject to underwriting approval. Certain restrictions apply. Call for details. All borrowers must meet minimum credit score, loan-to-value, debt-to-income, and other requirements to qualify for any mortgage program. This is not a commitment to lend.