The order in which payments are applied according to a standard deed of trust is:

The correct sequence for applying payments under a standard deed of trust is typically to first apply the payment to interest, then to principal, and finally to any escrow account. This order is important for understanding how mortgage payments reduce the loan balance and cover costs associated with property taxes and insurance.

When a mortgage payment is made, the lender first deducts the amount of interest owed for the period from the total payment. This is because interest is calculated on the remaining loan balance, and it is prioritized in the payment application to ensure that the lender is compensated for the cost of borrowing. After the interest is covered, the remaining balance of the payment is applied to the principal, which reduces the overall loan amount that is owed. Finally, if there is any leftover amount after the interest and principal are covered, it is applied to the escrow account to cover property taxes and insurance.

This order helps maintain the proper accounting of the loan and ensures that all aspects of the mortgage obligations are met in a structured manner. Understanding this payment application order is crucial for borrowers as it affects their loan payoff and overall financial planning.