What Does Your Home Loan Payment Consist of?

Your Home Loan Payment = Principal + Interest + An Escrow Account

The elements that make up your monthly or bi-monthly home loan payment are principal, interest and in most cases, an escrow account.

What is Principal?

Principal is the amount of money you borrowed to purchase your home, excluding the interest of the home loan. Principal generally equals the sale price of the home you purchased minus the down payment you made.

Principal = Home Purchase Price – Your Down Payment

With every home loan payment you make, the principal amount will decrease.

What is Interest?

Interest is what you pay to borrow the money that is used to purchase your house. It is the cost of using money that is not yours. In the beginning, most of your monthly payments go toward interest.

What is an Escrow Account?

In most cases, a part of your monthly home loan payment goes into an Escrow Account. This account is used to pay taxes, homeowners’ insurance and home loan or mortgage insurance (if required). This part of your monthly home loan payment can fluctuate, even in a fixed rate home loan.

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