What are the typical components of a mortgage payment?

The components of a mortgage payment typically include principal, interest, taxes, and insurance. This combination reflects a complete picture of what a homeowner is responsible for paying monthly.

The principal is the amount borrowed to purchase the home, and each payment reduces this balance. Interest is the cost of borrowing that principal, calculated as a percentage of the remaining principal balance. Taxes usually refer to property taxes levied by local governments, which are often included in monthly payments and placed in an escrow account until they are due. Insurance can refer to homeowner's insurance, which protects the property, and in some cases, it may also include mortgage insurance if the down payment is less than 20%.

Understanding these components is crucial for homeowners as it helps them budget effectively and ensure that they meet all financial obligations associated with homeownership.