What Costs Are Actually in Your Monthly Mortgage Payment? Let’s Break Down the Total
At Liberty Star Mortgage, we’re often asked: “What exactly is included in my monthly mortgage payment?” Understanding the components of your mortgage can help you plan and budget with confidence, especially if you’re a first-time homebuyer.
Here’s a breakdown of the four main costs that typically make up a monthly mortgage payment:
1. Principal & Interest
This is the core of your mortgage payment. The principal is the amount you borrowed, and the interest is the cost of borrowing that money from the lender. This portion goes directly toward paying down your loan balance and covers the interest rate you locked in when your mortgage was finalized.
2. Property Taxes
Your lender collects your property taxes as part of your mortgage payment and pays them on your behalf when they’re due. This includes taxes for your city, county, school district, MUD district, and any other applicable taxing authorities in your area. These amounts can vary widely depending on the location of your home.
3. Homeowners Insurance
Also known as hazard insurance, this protects your home against damage or loss from events like fire, storms, or theft. You will shop for your own homeowners insurance policy, but the premium is paid as part of your mortgage payment and held in escrow by your lender until the bill is due.
4. Private Mortgage Insurance (PMI)
If you put down less than 20% on your home, you’ll likely have to pay private mortgage insurance. PMI protects the lender in case you default on the loan. It’s an added monthly cost, but it may be removed once you reach 20% equity in your home.
Why Understanding Your Mortgage Payment Matters
Knowing what’s included in your mortgage payment helps you budget better and avoid surprises down the road. At Liberty Star Mortgage, we work closely with buyers to make sure every piece of your payment is explained and transparent.
If you have questions about how mortgage payments work or want to understand what your payment might look like, let’s chat. We’re here to guide you every step of the way.
