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Mortgage Payment Breakdown

Key Takeaways

  • Your monthly mortgage payment consists of mortgage principal and interest.
  • You can arrange for your mortgage payment to be automatically withdrawn from your bank account.
  • Lenders may also set up an escrow account for real estate taxes and insurance premiums collected with your monthly mortgage payment.

When you start house hunting, you probably have broad thoughts about applying for a mortgage, such as the sale price, down payment, and interest rate. But in the end, it's going to come down to finding a monthly mortgage payment that fits your budget.

As a homeowner, it's important to understand what goes into your mortgage payment, as well as ways to ensure you make all necessary payments on time.

Make-up of monthly mortgage payments

The amount you pay each month is a combination of mortgage principal — which is used to reduce your outstanding loan balance — and interest that has accumulated on the remaining loan balance. Let's say, for example, you have a fixed-rate mortgage for $150,000 over 30 years at 4.164% APR. That will result in 360 monthly mortgage payments of $731. At the beginning of the loan term, your monthly payment will mostly consist of interest and a little principal. This is because you're paying interest on a larger loan balance.

As you continue to make monthly payments and chip away at the outstanding mortgage principal, you'll be charged less interest. Eventually, more of your monthly mortgage payment will be going toward paying down the principal.

Benefits of automatic payments

Once you’ve closed on your mortgage, you'll receive monthly billing statements in the mail. You can use the statement voucher to mail in your payment. Alternatively, you may be able to arrange for your mortgage payment to be automatically withdrawn from your bank account.

Contact your lender or visit your lender’s website to learn how to get this started. With automatic payments, you may be able to choose the monthly date on which your payments will be paid so you can better plan your budget. You can also rest assured that your mortgage payment will never be late since you don't have to remember to mail it in or worry that the payment will be delayed, putting you at risk of owing late fees or damaging your credit.*

What is an escrow account?

In its most basic state, a mortgage payment is a combination of principal and interest. But, lenders may also set up an escrow account for borrowers to hold real estate taxes and premiums for homeowner's insurance, private mortgage insurance (PMI), and flood insurance, if applicable. The lender will use the money to pay these expenses on your behalf.

With an escrow account, you don't have to worry about missing a tax or insurance payment, which could cause gaps in coverage or penalty fees. Your lender will tell you when you fill out an application if an escrow account will be set up for you, as well as your options should you ever want to opt out.

More information

We are committed to helping you reach your potential by providing personalized solutions. Our dedicated colleagues can help you find the right product to help you reach your goals. To learn more about mortgage solutions, please call 1-888-514-2300, visit us online, or find a loan officer.

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