Elements of a Mortgage Payment

Elements of a Mortgage Payment

At City Creek Mortgage, we’re here to help you understand all the basics of a given mortgage loan if you’re buying a home. This is one of the biggest financial commitments you’ll make in your entire life, and you need to have a clear picture of the rates available to you and all the other important financial details.

One of the biggest questions many clients have here: What are the basics of a given mortgage payment that I’ll make each month? Let’s go over the primary financial elements of a mortgage payment, plus a few options you have in this arena.

Elements of a Payment

There are four primary elements of a mortgage payment, which is generally due on the first of each month. These elements are:

  • Principal: Principal refers to the part of your monthly payment that goes toward the actual remaining balance. As you move into later years of your mortgage, a higher and higher percentage of the principal amount will be paid off with each payment.
  • Interest: This is the fee that you’re charged by a lender for borrowing this money, a rate that’s set during your approval process. The best way to view interest is in APR (Annual Percentage Rate) format, which includes mortgage insurance and any fees that were folded in.
  • Taxes: Monthly property taxes can also be part of the mortgage payment.
  • Insurance: In many mortgages, the buyer will also have to purchase homeowners and/or private mortgage insurance.

Taxes and Insurance Options

The last two sections mentioned above, taxes and insurance, come with a few options as to how they’re paid. Here are the most common options:

  • Holding in escrow: This is a format where your lender gets your tax bills and any insurance bills, then estimates a monthly amount that will be needed to cover them. Each month, they’ll collect that as part of your mortgage payment and hold it in an escrow account, to be paid as these bills are due.
  • Self payment: A format where you actually pay taxes and insurance bills yourself, directly. These payments often aren’t monthly or on the same schedule as standard mortgage payments, though, so remember to be diligent about due dates.

For more on the basic elements of a mortgage payment, or to learn about any of our other mortgage loan services, speak to the pros at City Creek Mortgage today.