Components of your mortgage payment

There is more to your mortgage payment than simply what you’re paying back to the bank. Your mortgage payment is made up of several components including your loan money back to the bank, your mortgage interest, and your escrow. Here is a breakdown:

1. The Principal - what you're paying back to the bank of your borrowed money
2. The Interest - the money you're paying the bank for lending you the money
3. The Escrow - monthly allowance for property taxes and insurance premium

Your Mortgage Principal
The mortgage principal is what you borrow to purchase the house, also known as the loan amount. This is the most straight-forward component of your loan payment.

Your Mortgage Interest
The interest rate is the cost of borrowing money and essentially what the bank is charging in order for them to lend you money. Interest rates fluctuate on a variety of factors including your type of loan, home location, down payment, credit score, and more.

Your Escrow
Your escrow is typically the combination of your property tax, homeowners insurance, and occasionally private mortgage insurance (PMI). Your escrow account is set up to collect your monthly taxes and insurance to pay in a lump sum at the end of the year. The payment is normally completed by your lender making it a seamless process for you as the borrower.

When determining how much house you can afford, it's important to keep each of these components in mind as they will affect your monthly payment costs. There's much more to a payment than simply the amount you're borrowing. When determining how much home you can afford, our online Home Affordability calculator is a great place to start; however, it's always beneficial to sit down with a mortgage specialist to discuss your options in person.