They taught you how to understand X+Y in high school, but skipped on what’s included in a mortgage statement, huh? Same here.
If you’re considering becoming a homeowner in the near future, you’re probably asking two questions: “How much mortgage can I afford?” and “What exactly is included in my monthly mortgage payment?“
Understanding your mortgage payment is key to managing your budget and feeling confident in your home purchase.
Here’s a simple breakdown of key components:
1. Principal and Interest
The principal is the amount you borrow to purchase your home, while the interest is the cost of borrowing that money. Each month, a portion of your mortgage payment goes toward reducing the principal, while the rest covers the interest. In the early years of your loan, a larger share of your payment goes toward interest, but over time, more will be applied to the principal—gradually building equity in your home.
Keep in mind that some loan types, such as interest-only loans or adjustable-rate mortgages, may have different payment structures, so it’s always best to review your loan agreement for specific details
2. Escrow Account (If Applicable)
An escrow account is often included with your mortgage to cover expenses like property taxes and homeowners insurance, ensuring these bills are paid on time. A portion of your monthly mortgage payment is set aside for these costs, making budgeting easier.
However, since tax and insurance rates can fluctuate, your escrow payment—and overall monthly mortgage payment—may be adjusted annually to reflect any changes.
3. Total Payment
Your total monthly mortgage payment is the full amount you owe each month, including principal, interest, and escrow (if applicable).
If you don’t have an escrow account, you’ll be responsible for paying your property taxes and homeowners insurance separately and directly to the appropriate agencies.
4. Your Loan Balance
Your mortgage statement will reflect the current balance on your loan, and as you continue making payments, your equity in your home will gradually increase over time.
Use Our Mortgage Calculator to Estimate Your Payment
If you’re wondering, “How much mortgage can I afford?” our mortgage calculator can help! It factors in principal, interest, property taxes, homeowners insurance, and mortgage insurance (if applicable) to give you an accurate estimate of your monthly payment.
Our calculator also breaks down payments by VA, FHA, USDA, and Conventional loans, helping you see the differences between loan options. Whether you’re a home buyer or refinancing, this tool provides a look at what you can expect to pay each month.