What is a Mortgage Payment?

wiseGEEK Writer

A mortgage payment is an amount of money paid on a weekly, bi-weekly, or monthly basis that helps to pay off amount owed on a mortgage. Most people who have home loans make once a month payments. Mortgage payments vary in size depending on the size of the loan, type of loan, and interest rate. Other things may influence size of payments.

Most mortgages are paid once a month.
Most mortgages are paid once a month.

These payments may consist of three or four parts. A common acronym is used to describe these parts. This is PITI, which stands for principal,interest, taxes, and insurance.

Mortgage payments vary based on the amount of the loan, term and interest rate.
Mortgage payments vary based on the amount of the loan, term and interest rate.

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Principal is the percentage of the mortgage payment that helps to pay down the initial amount of borrowed money. Typically principal payments help build equity or ownership. Larger payments to the principal mean people have more ownership in their property earlier. Amount of money paid to the principal is influenced by type of mortgage. Lengthy mortgages like 40-year loans would mean principal payments are very small, and some home loans, like interest-only ones, might mean no money goes toward the principal in the first few years of the loan.

Interest is the amount of the mortgage payment that covers interest charges. Interest amounts usually vary depending upon interest rate, length of loan, and how repayments are structured. Some loans have variable rates, which means interest payments may be higher or lower on a regular basis. In many mortgages, the amount of interest payments decreases, which means more money is paid to the principal.

Taxes can refer to those parts of the mortgage payment that help to meet city, county, state, or country tax obligations of owning specific property. Some people choose to make tax payments on a quarterly basis, and do not include tax payments in their mortgages. Others find that adding tax payments to mortgages is convenient and makes taxes owed at any one time smaller. This is especially true when tax payments are split into monthly payments.

Insurance often means private mortgage insurance, which not everyone has. Certain types of loans, especially when less than 20% down is given, require that people carry private mortgage insurance. In case of default on the loan, this insurance helps to cover the bank from losses. Home insurance to cover damage to property is usually not part of a mortgage payment and is instead a separate payment to an insurance company.

A mortgage payment may not have all parts of PITI and some are merely composed of payments to principal and interest. People should consider the percentages of payment that goes to principal when getting a mortgage. Higher amounts to principal are greatly desired. With each payment, people own more of the property for which they borrowed money.

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