Principal is the amount you pay each month that goes towards your ownership/equity in the home. Interest is the cost you pay each month for ‘borrowing’ the money used to buy the home. You can pay what’s called a ‘principal curtailment’ in addition to your monthly mortgage payment that goes directly towards your equity. This is a great way to reduce the length of your term without needing to refinance your mortgage.
Property taxes vary by city and county and are calculated as a percentage of your home’s value. Property taxes are mandatory and must be paid each year (some states collect twice/year). Many homebuyers choose to pay these alongside their principal & interest each month, rather than in one lump sum at the end of the year, this is referred to as ‘escrowing’.
Homeowners Insurance is required to ensure the property is protected. Similar to property taxes, you can add these to your escrow/monthly mortgage payment.
Mortgage Insurance (If Applicable)
Mortgage insurance may be required if your down payment is below 10.01% or if you are getting an FHA loan. In some cases, once you hit 10.01% equity, you can have the mortgage insurance removed from your payment. FHA loans have an upfront mortgage insurance premium and an ongoing mortgage insurance for the life of the loan.
If you are purchasing a home that has a Homeowners Association, you will most likely have a monthly HOA association fee in addition to your mortgage payment. These fees are collected to pay for neighborhood services such as landscaping, maintenance, upkeep, amenities, etc. These fees are paid directly to the Association, and are not included in your monthly mortgage payment.