Buyer's Guide
Lansing Area Real Estate
REAL ESTATE
 
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What's included in a mortgage payment
   

A monthly mortgage payment includes the following, known as PITI:        

  • Principal on the loan
  • Interest on the loan
  • Real estate Taxes
  • Property Insurance and, often, PMI (private mortgage insurance)

Excluding taxes and insurance, a typical mortgage payment consists of interest on the loan and payment towards the principal, or the unpaid balance of the loan.

The amount you pay towards interest and principal varies steadily over time. This is because mortgage loans work in such a way that during the first few years, most of the monthly mortgage payment will be applied to
the interest on the loan. During the final years of the loan, the payments will be applied primarily to the remaining principal. 

For example, the principle and interest for the monthly payment of a fixed-rate, 30-year, $100,000 mortgage loan at 7.5% interest is $699.21.        

  • $625 of the first payment is interest.
  • $74.21 of the first payment goes towards the principal.

Each successive payment will show a slight reduction in the amount paid toward interest with an equal increase in the amount applied to the principal. In the later years of the loan almost all the payment is applied to the principal.

Note:
The annual interest you pay on your mortgage, along with your annual property taxes, are a straight deduction on your Federal Income Tax return. 

 
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