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.
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!