What Does my Mortgage Payment Cover?

For those who are used to paying rent, the components of a mortgage may be unclear.The home buying process can seem a bit intimidating for homebuyers who are purchasing their first home. For those who are used to paying one rental fee, the components of a mortgage payment may be unclear. Simply put, a mortgage is a loan to finance the purchase of a home. But what makes up a mortgage payment? Below is a list of the five components of a typical mortgage payment.


In terms of your mortgage payment, the principal is the amount of money borrowed. In other words, the principal of the mortgage equals the home purchase price minus your down payment. Therefore, the principal will depend on a number of factors including the down payment amount, the length of the loan and the loan type. If you want to pay less on your mortgage, it may benefit you to put more money toward your down payment. It’s important to note that the amount that will be applied to principal and interest will change over the course of the loan.To learn more about down payment amounts, read our article about “What Size Should Your Mortgage Down Payment Be?


The interest portion of your mortgage is money that is paid to the lender in exchange for taking the risk of lending money to the borrower. Interest rates are described in percentages and will vary by many, many factors such as income, debt, credit score and so on. The higher the interest rate, the higher the payment.

Property Taxes

A levy on the property that the owner is required to pay is known as the property tax. In addition to the principal and interest of your mortgage, the lender will collect one-twelfth of the amount of the yearly property taxes and keep those funds in what is known as an escrow account. When the property taxes are due each year, the funds paid into the escrow account will then be used to pay the yearly property taxes. Property taxes will vary based on the state in which you live.

Homeowner’s Insurance

The cost of homeowner’s insurance is also included in your mortgage payment. Homeowner’s insurance is a policy that insures the property against things like fire, weather damage, theft and other hazards. To read more about what homeowner’s insurance covers, check out one of our previous blog entries, here.

Private Mortgage Insurance

If you put less than 20 percent down on your home, you will be required to pay Private Mortgage Insurance (PMI). PMI protects the lender in the event that the borrower stops making payments. PMI also varies based on the size of the loan. To get a more in-depth look at PMI, please see our earlier post about the “Basics of Private Mortgage Insurance (PMI).”

We’re Here to Help

Colonial’s loan originators are among the most highly-skilled in the mortgage industry. We are available to answer any questions you may have, and are able to explain all the aspects of your mortgage payments. We will also work hard to find the loan that works best for you. Contact us today at 800.937.6001, or visit us at www.ColonialSavings.com.

Want to read more? Check out our article on “Tips for Getting Your First Mortgage.”


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