A monthly mortgage payment typically includes principal, interest, property taxes and homeowners’ insurance. It may also include mortgage insurance, homeowners association (HOA) fees or other costs depending on your loan and property.
Buying a home is exciting, but the numbers can feel overwhelming at first. You may see one estimated payment online, another number from a calculator and a different total once taxes, insurance or fees are included.
What's in this article?
That is why it helps to understand what goes into a mortgage payment before you start comparing homes. When you know the function of each part of the payment, you can shop with more confidence and avoid surprises later.
What is included in a monthly mortgage payment?
Many monthly mortgage payments are built around four main parts, often called PITI:
- Principal
- Interest
- Taxes
- Insurance
Some homebuyers may also need to account for:
- Mortgage insurance
- Homeowners’ association (HOA) fees
- Other recurring housing costs
Principal and interest are tied directly to your loan. Taxes, insurance, mortgage insurance and HOA fees are connected to the home, loan program or property type.
Ready To Take Your Next Step?
Principal and interest explained
Principal and interest are the foundation of your mortgage payment.
Principal
Principal is the amount of money you borrow to buy your home. When you make your monthly mortgage payment, part of that payment goes toward reducing your loan balance.
For example, if you buy a home and borrow $300,000, that $300,000 is your starting principal balance. As you make payments over time, the balance goes down.
Interest
Interest is the cost of borrowing money from your lender. Your interest rate helps determine how much interest you pay each month.
With a fixed-rate mortgage, your principal and interest payment generally stays the same for the life of the loan. With an adjustable-rate mortgage, your rate and payment may change after the initial fixed period.
Early in the loan, more of your payment usually goes toward interest. Over time, more of each payment goes toward principal.
How taxes and homeowners insurance affect your payment
Property taxes and homeowners insurance are often included in your monthly mortgage payment through an escrow account.
Property taxes
Property taxes are set by local taxing authorities. They help pay for public services such as schools, roads, libraries and emergency services.
Because property taxes vary by location, two homes with the same purchase price can have very different monthly payments.
Homeowners insurance
Homeowners insurance helps protect your home if it is damaged by a covered event (such as a fire or natural disaster). Your lender typically requires homeowners insurance because the home serves as collateral for the mortgage.
Insurance premiums can vary based on factors such as location, property type, coverage level and claims history.
Escrow account
An escrow account is an account managed by your lender or loan servicer. It collects money each month for certain property-related expenses, such as taxes and insurance.
Instead of paying one large tax or insurance bill once or twice a year, an escrow account divides those costs by twelve and includes them in each monthly payment. When the bills are due, your lender or servicer pays them from the escrow account.
This can make budgeting easier, especially for first-time homebuyers.
Factoring mortgage insurance into your monthly payments
Mortgage insurance is different from homeowners insurance.
Homeowners insurance helps protect the property. By contrast, mortgage insurance offers security for the lender if a borrower stops making payments.
Mortgage insurance may be required depending on your loan type, down payment and borrower profile.
Private mortgage insurance
Private mortgage insurance (PMI) may be required for some conventional loans, often when the down payment is less than 20%.
PMI can make it possible to buy a home without waiting until you have a 20% down payment saved. However, it adds another cost to your monthly payment.
FHA mortgage insurance
Federal Housing Administration (FHA) loans use mortgage insurance premiums. These costs work differently from PMI on a conventional loan.
FHA loans can be helpful for buyers who need more flexible credit or down payment options, but buyers should understand how mortgage insurance affects the full monthly payment.
VA and USDA loan costs
Veterans Affairs (VA) loans do not require monthly mortgage insurance. However, eligible borrowers may have other loan-specific costs, such as a VA funding fee.
United States Department of Agriculture (USDA) loans may include guarantee fees. These costs can affect the total cost of the loan.
A Compass Mortgage loan officer can help you compare loan programs and understand what may apply to your situation.
HOA fees and other monthly housing costs
Some properties come with homeowners’ association fees. These are common with condos, townhomes and some single-family communities.
HOA fees are usually paid directly to the association, not through your mortgage payment. Even so, they still matter when you calculate your monthly housing budget.
Lenders may also consider HOA dues when reviewing affordability.
Housing costs beyond your mortgage payment
Your mortgage payment usually does not cover all the costs of owning a home. Buyers should also plan for everyday expenses that come with the property.
These may include:
- Utilities
- Internet
- Maintenance
- Repairs
- Lawn care
- Snow removal
- Furniture
- Moving costs
- Special assessments
A home that looks affordable based on principal and interest alone may feel different once you include the full cost of ownership.
Example mortgage payment breakdown
Here is a simple example of how a monthly housing payment may be organized.
| Payment component | Monthly amount |
| Principal and interest | $1,900 |
| Property taxes | $450 |
| Homeowners insurance | $150 |
| Mortgage insurance | $125 |
| HOA fees | $175 |
| Estimated total monthly housing cost | $2,800 |
This example is for illustration only. Your actual payment will vary based on loan amount, interest rate, taxes, insurance, loan program, credit profile, property location and other factors.
This example shows why it is helpful to look beyond principal and interest. A homebuyer who budgets only for the loan payment may underestimate the total monthly cost.
Why your mortgage payment can change
A fixed-rate mortgage can keep your principal and interest payment steady. However, your total monthly payment can still change.
Common reasons include:
- Property taxes increase or decrease
- Homeowners insurance premiums typically escalate
- Escrow analysis shows a shortage or surplus
- Mortgage insurance can vary
- HOA dues may go up
- Interest rates for adjustable-rate mortgages (ARMs) move up or down periodically
For example, if your property taxes increase, your escrow payment may also increase. That can raise your monthly payment even if your interest rate stays the same.
Your loan servicer typically reviews your escrow account once a year. If there is a shortage, your payment may be adjusted to make up the difference. If there is a surplus, you may receive a refund or payment adjustment.
How to estimate your monthly mortgage payment
A mortgage calculator can be a helpful starting point. It can show how loan amount, down payment and interest rate may affect your payment.
For a more complete estimate, include:
- Property taxes
- Homeowners insurance
- Mortgage insurance, if required
- HOA fees, if applicable
- Estimated maintenance and utility costs
You can start with our mortgage calculator to explore possible payment scenarios. Then, connect with a Compass Mortgage loan officer for guidance based on your goals, loan type and home search.
Get more confidence before you make an offer
Understanding your monthly mortgage payment can help you shop smarter. It can also help you make an offer with more confidence.
Compass Mortgage’s Get Committed® program allows you to get a fully vetted loan commitment and lock in your interest rate even before making an offer.
With Get Committed®, qualified buyers can move forward with a clearer picture of their financing before they find the right home.
FAQs: What goes into a mortgage payment?
The four main parts of a mortgage payment are principal, interest, taxes and insurance. This is often called PITI. Some borrowers may also pay mortgage insurance or homeowners’ association fees.
Homeowners insurance may be included if your lender uses an escrow account. In that case, part of your monthly payment goes toward your insurance premium. Some borrowers may pay homeowners insurance separately.
Property taxes are often included in a mortgage payment through escrow. Your lender or loan servicer collects a monthly amount and pays the tax bill when it is due. This can depend on your loan, lender requirements and property details.
Private mortgage insurance may be included in your monthly payment if required by your loan.
PMI is often required on some conventional loans when the down payment is less than 20%. The amount and duration depend on your loan terms.
HOA fees are usually paid directly to the homeowners’ association, not through your mortgage payment.
However, HOA fees still count as part of your monthly housing cost. They may also be considered during the mortgage approval process.
Understand your payment before you buy
Knowing what goes into a mortgage payment can help you plan with more confidence. Principal and interest are only part of the picture. Taxes, insurance, mortgage insurance, HOA fees and other housing costs can all affect affordability.
Before you fall in love with a home, take time to understand the full monthly cost. A Compass Mortgage loan officer can help you compare options, estimate payments and choose a loan that fits your goals.
Apply with Compass Mortgage or call us at (877) 635-9795. We’ll help you finance your home with a simplified and personalized process.