What Fees Are Included in My Monthly Mortgage Payment?

What Fees Are Included in My Monthly Mortgage Payment?

December 18th, 2019 | Purchasing a Home

You think you understand how much your mortgage payment is going to be and then your first bill comes. There seems to be more included in your payment than you expected. What are all the fees in your monthly mortgage bill?

Mortgage Principal

Your mortgage principal is the base amount of money you needed to borrow to buy a home. For example, if you are buying a $200,000 home and you put down $20,000, your principal is $160,000. Almost all home loans are amortized, meaning they are structured so that the amount of principal you repay each month starts out small and increases over time. During the first few years of the loan, you might be amazed to see how little of your monthly payment goes to the actual principal. In fact, your interest portion might be as much as three times your principal amount in the beginning. By the end of the loan, your mortgage portion of the payment will be made up almost entirely principal.

Mortgage Interest

Interest is the amount of money you give the lender for the privilege of borrowing money to buy a house. It is calculated based on the interest rate offered you by your lender. The reason that your interest portion makes us such a large part of your early payments is because the interest is calculated based on the size of the principal. At the beginning of the loan, you owe a lot of principal and the interest is higher. At the end of the loan when your principal is almost paid off, the interest required on that tiny sum is also tiny.


Beyond your lender fees, government property taxes are usually included in your monthly mortgage payment. Your escrow company will divide your yearly bill by 12, collect your taxes and insurance payments each month, and pay the premiums for you when they come due.  In some cases, it is possible to pay these as a lump sum once a year. Property taxes are used to pay for schools, fire departments and police departments. Some areas can have higher property taxes than others based on things like home prices or special government bonds.


Insurance premiums are also a typical part of a monthly mortgage payment. Homeowners insurance is required in almost all cases. It provides reimbursement in case of natural disaster, fire or theft. 

For borrowers who put down less than a 20% down payment, private mortgage insurance (PMI) is also required. This protects the lender against borrower default and the accompanying loss of profit. PMI can be cancelled when the buyer reaches 20% equity in the home. Both PMI and homeowners insurance premiums can be paid as once yearly lump sums, but are most commonly divided into the monthly payments.  Even after you pay off your entire mortgage balance you will still be required to pay property taxes and insurance premiums. 

Every mortgage payment contains more than just a principal payment. Understanding all the components of your monthly home loan bill can help you better comprehend the true costs of homeownership.


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Prime 1 Bancorp, Ltd is not affiliated with any government organization or bank nor do we act on behalf of the FHA or VA. This material is not from HUD or FHA and has not been approved by HUD or a government agency. We are not a Federally chartered or State Chartered Bank. We are an we are an Illinois Residential Mortgage Licensee by the Office of Banks and Real Estate License #MB.6761138, a Colorado Registered Mortgage Brokerage by Division of Real Estate, a Florida Residential Mortgage Brokerage Licensed by the Office of Financial Regulation License #MBR1930 dba Prime 1 Mortgage Inc, a California CFL Licensed Mortgage Brokerage by Department of Business Oversights 60DB055973 and a Texas SML Licensed Mortgage Brokerage by the Texas Department of Savings and Mortgage Lending. Prime 1 Bancorp, LTD Corporate Office is located at 2720 S. River Rd Suite 50, Des Plaines, IL 60018 our Toll Free Number is 888-205-3737. NMLS: 1434638

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