Mortgages & Financing
What goes into a monthly mortgage payment?
By Steve Lockhart
The short answer
Your total monthly payment is built from more than the loan itself. The largest line is principal and interest, the paydown of what you borrowed plus the financing cost.
Full answer
Your total monthly payment is built from more than the loan itself. The largest line is principal and interest, the paydown of what you borrowed plus the financing cost. Then come property taxes and homeowners insurance, which usually live in an escrow account the lender pays for you. If you put down less than 20 percent on a conventional loan, private mortgage insurance joins the line, and if the home sits in a community with HOA dues, that is a monthly line as well. This combined number is what your budget really needs, and it is the number the all-in mortgage calculators on this site produce. The taxes vary by property and county, the insurance by the home and the coverage, and the HOA by the community, so two homes at the same price can carry different monthly totals. We price every property all-in before the search, so the monthly number you plan against is the monthly number you pay.
Go a little deeper
Frequently asked
Questions people often follow up on
What does PITI mean?
Principal, interest, taxes, and insurance, the four lines that make up most payments. Add the mortgage insurance and the HOA dues when they apply and you have the real monthly total. I always present the complete line, never just the principal and interest, so the budget is honest from the first estimate.
The lender quote does not include HOA. Should I add it?
Yes, add it yourself. The lender estimate usually covers the taxes, insurance, and mortgage insurance, but the HOA dues are a separate obligation the community collects. When you compare two homes, add the dues to each one. The number without them always understates your real monthly outflow.
Why is my monthly payment higher than the loan payment?
Because the payment you make includes the escrowed bills, taxes, insurance, plus the premium and dues, not just the loan payback. The bank collects and holds the tax and insurance money. The full total is the real housing cost, and it is the number that belongs in your budget.
The Lockhart Method
The Lockhart Method
Your Home | My Strategy | Proven Results
My strategy: price every potential home all-in, taxes, insurance, dues, premium, from the first calculator to the final offer. The payment you approve is the payment you will pay, and the home that fits the total is the one worth the signature.
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