Your Recipe for a Healthy Monthly Mortgage Payment

When you got your mortgage, you probably read the paperwork carefully, to make sure you knew exactly what you were getting into. And you may have been a little shocked at that big number, the one that told you how much you would pay in total over the life of the loan. It’s a lot higher than the actual cost of your home, because it includes the interest you’ll pay, and a couple other things. Really makes you want to shop around for the best rate, doesn’t it?

So, what makes up a mortgage payment? For most people, each payment includes four things, and the breakdown is sometimes referred to as PITI.

  • Principal: The principal represents the price of your home. Unless your loan is interest-only, a portion of your payment goes toward principal each month, increasing the amount of equity you have in your home (hooray!).

  • Interest: Part of your payment goes toward the interest you owe your lender on the balance of your loan. As the amount of remaining principal you owe goes down, the amount of interest you pay each month will also decrease. If you look at your amortization schedule, usually available on your lender’s website, you’ll see that by the end of your loan term, the amount of principal you pay will exceed the amount of interest. Your lender expects you to pay the interest sooner than you pay the principal.

  • Taxes: When you have a mortgage on your property, your lender pays your property taxes, so a portion of the yearly amount is part of your payment each month.

  • Insurance: Your lender also pays your homeowner’s insurance on your behalf, so a portion of your payment goes towards that. This may also include PMI, if it was required when you originated your loan, but you usually won’t have to pay that forever. (Ready to eliminate PMI from your financial diet? Who isn't? Learn more about what you need to do to stop paying PMI.)

Your monthly mortgage payment can also include homeowners association fees, but PITIHoaF doesn’t sound as catchy, does it?

If you want to see an exact breakdown of your payments, month by month, ask your lender for an amortization schedule. You can also use our mortgage payment calculator to calculate the breakdown of your monthly payments, to see how your loan amortizes over time. Knowing how your mortgage recipe changes each month can teach you a lot about how your mortgage works, and it may even inspire you to refinance to a shorter term loan as soon as you can, because it’ll save you a pile of money! Use our refinance caclulator or 15 vs. 30 year calculator to get started.

Now that you know what's in the pot for your Mortgage Chili, you can pull out an actual pot and start making the real thing. Here are a few of our favorite recipes: