Understanding the Components of your Mortgage Payment

January 28, 2022
Mortgage Payment

Unlike rent payments, which are simple, mortgage payments are made up of multiple components. When evaluating how long it will take to pay off your house loan and how much it will cost you over time, understanding the structure of a mortgage is critical.

Knowing when and how to make payments can also assist you in staying on top of your mortgage each month. Let’s look at what goes into your mortgage payment and what you can do to pay it off.

Your mortgage payment is the method by which you repay your home loan. This is usually a once-a-month payment that helps you pay off your mortgage gradually.

It will also include your lender’s interest, insurance payments, and taxes. The option to make installment payments allows most people to purchase a property that would otherwise cost hundreds of thousands of dollars in cash.

Mortgage amortization refers to the way these payments are spread out throughout the life of your loan.

Breakdown of Mortgage Payments

As a homeowner, you’re likely to come across strange mortgage phrases and lingo. One of these words is PITI, which stands for principal, interest, taxes, and insurance, the four main components of a mortgage payment.

They add up to the amount you pay on your mortgage each month. When you’re looking for a home, this helps both you and the lender figure out how much you can afford.


The principal and interest components of a mortgage payment are the most basic. The amount you borrow from a lender to purchase your property is referred to as the principal. 

It’s included in your monthly payment and will be paid off throughout the course of your loan.

The amount of principal you pay each month after you buy a house and start making payments is rather low. As the loan matures, a larger portion of your monthly payment will be applied to the outstanding principal.


The percentage of the principal you pay to your mortgage company as a charge for lending the money over the term of the loan is called interest. As you pay off your debt, the amount that goes to interest will decrease.


You will pay a property tax on your home regardless of where you live. The amount you pay is dependent on a percentage of the value of your home, which varies year to year.

The amount you pay is determined by a number of criteria, including your home’s assessed value and local tax rates. Every county, in most cases, has its own taxing system.

If the assessed value of your property rises (which isn’t always the same as the market value), your property taxes will rise as well.


There are two forms of insurance that can affect your monthly mortgage payment:

  • In the event of a natural disaster or an accident on your property, homeowners insurance acts as a safety net to protect your house and finances. If something were to happen, your homeowners insurance would usually cover the cost of repairs to restore the value of your home to its previous state.
  • Mortgage insurance isn’t required for everyone, but if you can’t afford a large down payment, you’ll almost certainly have to pay a premium. Because lenders are risky with modest down payments, they may seek mortgage insurance to protect their investment if the loan defaults. 

You may be required to pay private mortgage insurance (PMI) or a mortgage insurance premium, depending on the type of loan you have (MIP).

The insurance component of your mortgage payment, along with taxes, may be deposited into an escrow account to cover those costs.

The Process of Making Mortgage Payments

It’s time to start repaying your loan now that you know what goes into each installment.

When Should You Pay?

After the first full month after your closing date, your first mortgage payment will be due. If you close on June 9, for example, your closing costs will cover the interest you’ll pay for the rest of the month.

Then, on August 1, your payment for the month of July is due.

Although monthly mortgage payments are the most typical, your lender may allow you to pay biweekly. With a biweekly payment schedule, your payment becomes more manageable because it’s cut in half.

How To Make A Payment

You can pay your mortgage online in the same manner that you could pay your auto insurance or phone bill. You can still make payments by mail or phone, but most homeowners prefer to pay online because it is easier and more convenient. 

The ability to set up automated payments, either through your bank or directly with your lender, is one reason for this.

Although monthly mortgage payments are the most typical, your lender may allow you to pay biweekly. Your payment is cut in half with a biweekly payment schedule, making it more manageable.

It’s important to remember that mortgage payments can fluctuate. Every year, the amount required for taxes and insurance may increase or decrease. 

If you have an adjustable-rate mortgage (ARM) that has reached the end of its fixed period, the same applies. You may ensure that your payment isn’t too low and that you’re not overpaying when your escrow or rate drops by setting up an automatic payment through a lender rather than the bank.


There’s no such thing as being too prepared when it comes to paying a mortgage. When determining how much housing you can afford, knowing what goes into a mortgage and how to manage payments will help you prepare for the future.