Understanding Your Monthly Mortgage Payment

Your monthly mortgage payment comes due each month, but do you really understand where your money is going and what it’s being applied to? Knowing how your money is being applied and what it means for your overall financial health is really important. 

Every monthly mortgage payment might look different, but they all have these four factors in common:  


Your principal is the amount you actually borrowed from the lender when you purchased your home. For example, if you took out a loan for $250,000, then your total principal amount would be $250,000. While a portion of each monthly payment is applied towards your principal, a sizeable chunk–especially early in the life of your mortgage–is applied towards interest. That means that the principal amount on your loan will decrease slowly at first. 


Each month a portion of your total monthly payment is applied to the interest on your mortgage. Essentially, interest is where your lender makes their money. It’s their compensation for taking on the risks associated with loaning you money. The interest rate of your mortgage will impact the amount of your monthly mortgage payment that goes towards interest. Every percentage point matters.

monthly mortgage
Close-up image of a financial worker analyzing statistical data


Taxes also factor into your total monthly mortgage payment. Your yearly property taxes are included in addition to your payments towards both the principal balance and interest. Property taxes can vary widely depending on where your home is located. 


As a homeowner paying a mortgage, you’re required to have homeowner’s insurance. In the event of a disaster, your homeowner’s insurance will cover the cost of the damages and ensure that you aren’t paying for a house that has burnt down or been blown away. Additionally, if you paid a down payment of less than 20%, you’ll be required to carry mortgage insurance.  Mortgage insurance protects the lender if you default on your payments for whatever reason. 

Principal, interest, taxes, and insurance all add up to your total monthly mortgage payment. While the details and amounts of each vary depending on the nature of the loan, every homeowner has these in common. 

If you want to better understand your monthly mortgage payment, First Lenders will be glad to take a look. Give us a call today!