When budgeting for a home, many buyers focus on the purchase price or interest rate. But your monthly mortgage payment is actually made up of several different pieces that work together.
Understanding these components can make the homebuying process feel a lot less confusing. Let’s take a look at what is typically included. 
1. Principal 
The principal is the portion of your payment that goes toward paying back the amount you originally borrowed for your home.
As you continue making payments, your loan balance gradually decreases, and your home equity grows over time. 
2. Interest 
Interest is the fee paid to the lender for borrowing the money.
At the beginning of your loan, a larger portion of your payment goes toward interest. As the years go on, more of your payment begins going toward the principal instead.
3. Property Taxes 
Most mortgage payments include property taxes, which are collected monthly and placed into an escrow account.
When your tax bill is due, the lender pays it on your behalf using the funds that have been set aside. This helps prevent homeowners from facing large lump-sum payments during the year.
4. Homeowners Insurance 
Homeowners insurance protects your property from unexpected events like fires, storms, or other types of damage.
Just like property taxes, your lender will typically collect this as part of your monthly payment and pay the insurance company when the policy renews.
5. Mortgage Insurance (If Applicable) 
Some loans require mortgage insurance, particularly when the down payment is less than 20%.
This coverage protects the lender and is simply another component that may be included in your monthly payment depending on your loan type.
Putting It All Together 
These pieces are commonly referred to as PITI: Principal + Interest + Taxes + Insurance.
Every homeowner’s payment will look a little different based on the loan program, property taxes, insurance costs, and down payment. Understanding what makes up your monthly payment can help you feel more prepared and confident when purchasing a home.
If you’re curious what a monthly payment might look like for you, our team is always here to help walk you through the numbers!