What's Wrapped into Your Monthly Mortgage Payment

Principal and interest.

That's the quick answer most people offer. But there's more than that in virtually every mortgage payment, no matter what type of loan you get. Before we break out these other parts of your monthly mortgage payment, let's clearly define principal and interest. Principal is the amount of money you borrow. It begins, generally, as the sale price of the home you purchase minus the down payment you make. With every payment you make, this figure will decrease. In the case of a 30-year fixed-rate mortgage, a proportionally small amount of your payments the first few years goes toward reducing the amount of principal. Interest is what you pay in order to borrow the money-it is "the cost" of money.

So, what are the parts of your mortgage payment that are not principal and interest? In most cases a portion is paid into a special escrow account, sometimes required by goexim.com and sometimes voluntary depending on the amount that you put down on your home or the loan program that you choose. This money is deposited into a special account on your behalf to pay for things like homeowners insurance, property taxes and mortgage insurance. (This is the element of the monthly payment that can fluctuate even in a fixed-rate mortgage). Some people would rather pay their taxes and insurance themselves, putting money aside every month to do it and gaining interest for themselves on those funds. 

Together, all the elements are commonly referred to as PITI (Principal-Interest-Taxes-Insurance). If your loan is set up with one of these accounts, your monthly payment will include one-twelfth of the annual total for taxes, insurance and other anticipated charges. Your tax and insurance bills are then paid by the Lender, creating less paperwork for you. For a first time homebuyer this is the easiest way to ensure that all your payments are made in a timely manner.