What Your Mortgage Payments Include

As a homeowner, it’s important to understand what your monthly mortgage payment includes. Whether you’re a first-time homeowner or a seasoned pro, knowing the breakdown from principal to property taxes can set you up for future financial success. 

Principal 

Principal is the amount of money you borrowed to buy your home, or the amount of the loan you have not yet repaid. Generally speaking, the home purchase price, minus your down payment, equals the principal loan amount. The more money you pay up front in your down payment, the less you’ll need to borrow. 

If you have a fixed-rate loan, your total monthly principal and interest payment won’t change over the course of the loan term, but each month the amount of the payment applied to the principal balance increases as the amount applied to interest decreases. 

Interest 

Interest is the cost you pay to borrow money from your lender, and typically appears as a percentage of the amount you borrowed. Interest rates are set by your lender based on a multitude of factors; some you can control, but many you can’t. One of the biggest factors you can control is your credit score—a higher score could help you get a lower interest rate. 

Escrow 

An escrow account allows your mortgage servicer to pay the required taxes and/or insurance on the property you own. With your monthly mortgage payments, you pay a certain portion of your taxes and/or insurance premiums. When those taxes and/or insurance premiums come due, your servicer will pay them on your behalf with the money you have paid into your escrow account. It's important to note that your monthly escrow payment can change over time, reflecting adjustments in property taxes or insurance costs, which may result in an increase or decrease in your overall monthly mortgage payment.

• Property Taxes: Your tax rate is determined by where you live and by your local government’s assessment of your home’s estimated value. Property taxes may increase your mortgage payment by hundreds each month depending on those factors. The monies collected for property taxes go into your community to help build valuable infrastructure like roads, schools and cover other public expenses. 

• Homeowners Insurance: Your mortgage payments include your homeowners insurance premium to ensure your home is covered in the event of disaster or loss. Basic homeowners insurance is important protection that covers the physical property, items inside, issues like theft or fire and, in some cases, personal harm. Homeowners insurance typically doesn’t cover damage caused by earthquakes, volcanic eruptions, mudslides or landslides. In certain regions, homeowners are required to purchase flood insurance in addition to typical homeowners insurance.  

• Private Mortgage Insurance (PMI): Another type of insurance you may be responsible for is private mortgage insurance (PMI). PMI helps protect your lender in the event you default on your loan. This is an additional expense in your monthly mortgage payment if you’re unable to put down at least 20 percent of the cost of the home at the time of purchase. You can avoid this monthly charge by ensuring that you have an adequate down payment. 

Of course, there are other financial considerations when it comes to homeownership, such as monthly homeowners association (HOA) fees, costs associated with repairs and renovations, and various other costs that can add up over time as you continue to care for your home.  

At Carrington, we’re always looking for ways to help you save on your payments! One way you can save money is on your homeowners insurance. As a Carrington customer you have easy access to Covered, a digital insurance provider, to help you get the most competitive rates available. Now it's even simpler! Just log in to your personal dashboard, click “SHOP INSURANCE” and quickly get a personalized quote!