Education for Buyers

What Are You Paying in a Mortgage Payment?

Principal:

The amount of money you borrowed. The longer you make payments, the more of your payment goes to reduce the principal that you owe. Over time, interest will become a smaller part of your monthly payment.

Interest:

The cost of borrowing money, usually expressed as an annual percentage of the loan amount.

Property Taxes:

Taxes paid to local governments, usually charged as a percentage of the property value. The amount of tax will vary depending on where you live.

Hazard Insurance:

A contract that protects you from any financial losses on your property that might result from a fire, flood, or other "hazards". This is not an option. It is required.

Mortgage Insurance:

An insurance policy that pays lenders for part of their financial losses if a borrower fails to fully repay a loan. Mortgage insurance makes it possible to buy a home with a low down payment.

Next: What Are the Best Sources of Cash for a Down Payment?