Your mortgage payment is made up of a couple different components; let’s examine each in depth:

Principal & Interest Payment

This is the heart and soul of your payment, and might just called “the loan payment” or “P&I”.  If you are in a fixed rate fully-amortizing loan then this portion of your payment will always remain the same.  At the beginning of your loan, the amount of interest you pay will be more; at the end of your loan you will pay more in principal but these two added together will always be the same.

 

Escrows

Escrows are items that you pay to your lender which sit an account, an escrow account, so they can pay items like your property taxes or insurance on your behalf.  The amount collected represents 1/12th of the total payment, so that by the time each bill comes due they will have enough in escrow to make that payment.  You also can choose to pay escrow items yourself without paying them into an escrow account, but will need to have at least 20% in equity in the house before having that option.  Below is a list of items that are typically collected in escrows.

  • Property Taxes
  • Homeowner’s Insurance
  • Mortgage Insurance or Monthly Program Fees If using a government product such as USDA or FHA, or have a Conventional loan with less than 20% in equity.