Understanding the 7 Parts of a Mortgage Payment

If you’re getting ready to buy a house, you understand that you’ll have a mortgage. However, many people don’t know the components that make up the mortgage that affects how much home you can afford.

Understanding the components of a mortgage payment allows you to be better informed about what you’re paying and helps you stay within budget.

Below are seven parts of a mortgage payment that you should know.


Many lenders require you to have an escrow account to help pay for property taxes and insurance premiums for homeowner’s insurance.

While you can pay for these expenses on your own, an escrow payment goes to your lender, who then puts the money in your escrow account, so you don’t have to worry about forgetting to pay property taxes and insurance premiums because it is once a year.

HOA or Condo Fees

If you don’t own a condo or your home isn’t part of an HOA, you don’t have to worry about these fees. HOA fees cover maintenance and repairs for the common areas, such as landscaping, tennis courts, trash pickup, elevators, community pools, and a few other things.

Condo fees contribute to the upkeep of the building, including heat, water, maintenance, garbage collection, and elevator, but they don’t cover anything inside the condo units since that is the responsibility of the unit owners.

Homeowner’s Insurance

The purpose of homeowner’s insurance is to protect your home, personal property, and your lender in the event of a flood, fire, or other disasters, as well as liability in the event of someone injuring themselves on your property.

As mentioned above, many lenders require an escrow account, and each month one-twelfth of your homeowner’s insurance premium is placed into an escrow account to pay the premium when it’s due.


Nobody likes paying interest, but interest is the cost of borrowing money from a lender. The amount of interest you pay is determined by factors such as your credit score, interest rate, and the balance on your loan.

Having a higher credit score can help you acquire a lower interest rate. It’s better to choose a mortgage with a fixed rate, as the interest rates on mortgages change constantly.

Mortgage Insurance (PMI)

Homeowners who provided a down payment of less than 20% of their home’s price are often required to purchase private mortgage insurance.

The PMI protects the lender if you’re unable to pay your mortgage. The PMI payment is included in your monthly payments, and the lender also places this money in an escrow account to pay for the PMI premium when it’s due.


The principal part of the mortgage payment is the amount of money you borrowed from the lender to buy your house or the amount of the loan that you haven’t repaid yet.

When you first start making mortgage payments, you’re paying down the interest with a little bit of the money going toward the principal, but as time goes on, more and more of the mortgage payment goes toward paying off the principal.


Your monthly mortgage payments also include one-twelfth of your estimated annual real estate taxes, or property taxes.

Property taxes pay for schools, finance salaries for EMTs and other public safety workers, public parks, street construction and maintenance, libraries and social services, as well as sewer and stormwater management.

Your lender places this payment in an escrow account and later uses the money to pay the property taxes on your behalf.

At Equity Mortgage Lending, our mission is to serve our customers per their mortgage needs and pledge to help them overcome the roadblocks they may encounter when trying to secure a loan.

If you’re ready to take the next step in homeownership, contact us by filling out our online form or calling us at 1-800-332-9221.


* Specific loan program availability and requirements may vary. Please get in touch with the mortgage advisor for more information.