Understanding Your Mortgage Payment
For most people, a mortgage is the largest loan they will ever take out. It is crucial to understand what goes into your monthly payment to ensure you aren't buying "too much house."
The Components of a Mortgage
- Principal: The portion of your payment that goes directly toward paying down the actual balance of the loan.
- Interest: The fee the lender charges you for borrowing the money.
- Property Taxes: Local government taxes based on your home's assessed value (not included in our P&I calculator).
- Homeowners Insurance: Required by lenders to protect the property against damage (not included in our P&I calculator).
15-Year vs. 30-Year Mortgages
The two most common loan terms in the US are 15-year and 30-year fixed-rate mortgages.
30-Year Mortgage
Offers lower monthly payments because the loan is spread out over three decades. The downside? You will pay significantly more total interest over the life of the loan.
15-Year Mortgage
Requires higher monthly payments, but you build equity twice as fast and save tens (or hundreds) of thousands of dollars in interest. Lenders also typically offer lower interest rates for 15-year terms.