What's in a Mortgage Payment?

A typical mortgage payment is comprised of four items:

Principal, Interest, Taxes and Insurance (often referred to as "PITI").

Principal is the portion of your monthly payment that reduces the original amount borrowed. In a traditional mortgage, the original loan amount is "fully-amortized", or repaid, over the life of the loan. The interest portion of your monthly payment represents the cost of using the lender's funds for the previous month. In addition to principal and interest, lenders will also frequently collect an additional amount each month to hold in a separate escrow account to cover property taxes, homeowner's insurance, and, if necessary, mortgage insurance, or PMI. These escrowed funds will be used by the lender to pay your tax and insurance bills, as they come due.

Want to get an idea of what your monthly payments would be for a particular loan amount? Click here to use our free online mortgage calculator.