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Mortgage Payment Breakdown

Components of a Mortgage Payment

The two main factors determining your monthly mortgage payments are the size and term of the loan. Size being the amount of money you borrow and the term is the length of time you have to pay it back.

There are four main factors that play a role in the calculation of a mortgage payment:

  1. Principle - the amount of money you borrowed to buy your house.

  2. Interest - the cost you pay to borrow money from your lender, and it usually appears as a percentage of the amount you borrowed.

  3. Taxes- determined by the municipality you reside in and is based on the property's value. Taxes are calculated by the government on a per-year basis, but you can pay these taxes as part of your monthly payments.

  4. Insurance- two types of insurance coverage may be included in a mortgage payment.

    • Property Insurance, protects the home and its content from fire, theft and other disasters.

    • Private Mortgage Insurance (PMI) OR Mortgage Insurance Premium (MIP) depends on your loan type and is mandatory for people with a down payment of less than 20% of the cost. This insurance protects the lender if the borrower in unable to repay the loan.

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