What Really Goes Into Your Monthly Mortgage Payment?

24 Aug
What goes into your monthly mortgage payment?

The average mortgage amount in 2012 was $235,000. Which results in a average monthly mortgage payment of around $1,359.10.

Buying a house is probably one of the biggest financial commitments you will make in your life. While your mortgage payment will make up a considerable portion of the monthly costs related to your new home, there will be additional expenses that you will need to consider before you plunk down your earnest money and sign on the dotted line.

Here is a quick breakdown of the monthly expenses you can expect as a brand new homeowner:

Mortgage Payment

While some are lucky enough to pay for a home in cash, the majority of us will need a mortgage to finance our dream home. You monthly mortgage payment will actually be applied to two separate components:

  • Principal – This is the amount of money that you borrowed to buy the house. According to Capital Economics, the average mortgage amount in 2012 was $235,000. Regardless of whether you are above or below that average, a hefty portion of your monthly payment will go towards the principal.
  • Interest – The interest you pay on the principal is calculated based on the amount you borrowed, the interest rate you agreed to and the length of the loan. Getting the best interest rate will depend on a variety of factors but one of the biggest ones is your credit rating. Maintaining a clean credit history is key to homeownership.

Property Tax

Depending on where your home is located, your property tax bill could push up your monthly bills by hundreds of dollars each month. Property taxes are established by your local government, and are based on your homes assessed value. Property taxes can vary greatly from one area to the next.


You and your lender will want to protect your biggest asset which makes homeowners insurance a necessity. Costs will vary depending on the value of your home as well as risk factors in your area.

Homeowners insurance can be expensive so be sure you gather quotes on any home you are considering to ensure the insurance doesn’t put a strain on your monthly budget.

Basic homeowners insurance does not cover flood or earthquake damage so if you live in a flood or earthquake prone area you will need to look into additional coverages.

If your down payment on the house was less than 20 percent, your lender will require mortgage insurance. This coverage protects your lender in the event you default on the mortgage.


Gone are the days when your utilities were part of your monthly rent. You are now responsible for the water, gas, electric and whatever other monthly utility bills come your way. Remember, utility bills will vary throughout the year as the temperature and weather changes. The very affordable summer electric bill may shoot up during the winter as your furnace is running constantly to keep your house warm.


There is no longer a landlord to call when something goes wrong. The repair and maintenance bills are all yours now. It is wise to have some savings set aside in the event a big repair comes up. It is also a good idea to maintain your home, while putting off maintenance expenses will save money in the short run, eventually it could lead to an expensive repair.

HOA Fees

Depending on where you live, HOA fees could be part of your monthly expenses. In suburban communities the HOA will often cover things such as garbage collection and upkeep of the common areas. In condominiums the HOA may be higher and cover some of your monthly utilities.

The important thing to remember is that when shopping for a home, you should take into account all of the monthly expenses and make sure they fit comfortably into your monthly budget.

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