Ever look at your mortgage statement and think, “Where is all of this money going?” Fair question. One payment can be doing several different jobs.
Whether you’re buying in Tucker, settling into a place in Decatur or reviewing the home you already own, understanding those pieces makes your household budget easier to follow. Let’s break it down.
What is included in your mortgage payment?
- Principal: The part that pays down what you borrowed.
- Interest: The cost of borrowing the money.
- Property taxes: If collected through escrow, part of your payment is set aside for your property tax bill.
- Homeowners insurance: Your insurance premium may also be collected through escrow.
- Mortgage insurance: This may be an additional charge, depending on your mortgage. It is different from homeowners insurance.
You may hear the first four pieces called PITI. You don’t need to memorize the abbreviation… just know that the full payment can include more than paying back the loan.
What does escrow actually do?
Think of escrow as a holding account for certain homeownership bills. You contribute through your monthly payment, and the company servicing your mortgage uses that money to pay covered bills when they come due.
Not every mortgage has escrow. Without it, you generally handle those tax and insurance bills yourself. Either way, they still belong in your budget. The CFPB’s escrow guide (opens in new tab) explains how it works.
Why did my monthly payment change?
Start with the individual charges. A change in property taxes or insurance premiums can change the amount collected for escrow. Mortgage insurance or other charges may also affect the total.
Pull out your previous statement, your new statement and any escrow notice. Look for the line that changed, then ask your servicer to explain the difference. You don’t have to guess based on the new total.
For more background, see the CFPB’s explanation of payment changes (opens in new tab).
A quick checklist before you plan your budget
- Find the complete payment. When buying, review the Projected Payments section of your Loan Estimate with your lender. Don’t stop at the principal-and-interest figure.
- Check what is paid separately. Look for expenses that are listed but not escrowed, and ask when those bills will be due.
- Leave room for everyday ownership. Utilities, maintenance and repairs still need their own place in the budget. HOA or condo dues are generally separate, too.
If a condo is on your list, my Atlanta condo-buying guide covers questions to ask about the association. For your wider budget, try this five-minute household cash-flow check.
Have a statement that doesn’t make sense?
Your mortgage servicer is the place to confirm account-specific charges. I’m also happy to help you understand the pieces and figure out what questions to ask. Bring your questions… we’ll start there.
Connect with Art Wood or call 404-909-3567.
Art Wood, NMLS #118234 | Luminate Bank, NMLS #1281698 | Member FDIC | Equal Housing Lender. For educational purposes only, not individualized tax, insurance or financial advice or a commitment to lend. Payment components vary by mortgage and property.
Adapted from Luminate Bank’s mortgage-payment overview (opens in new tab). Additional resource: CFPB Loan Estimate explainer (opens in new tab).
