The principal is the amount of money you borrowed. Each month when you make your mortgage payment, you are paying back a small portion of the principal. The longer the payments are amortized (over 30 years for example), the more the payments go to reduce the principal you owe; over time, interest will become a smaller part of your monthly payment. In the beginning, most of the mortgage payments made to the lender will be interest payments.


Interest is the cost of borrowing money, usually expressed as an annual percentage of the loan amount – for example 8.125%, 9.000%, etc. Lenders will offer different rates depending on the type of loan program offered.

Property Taxes

These are taxes paid to local governments, usually charged as a percentage of the property value. Your lender collects the taxes through your monthly payments. The amount of tax will vary depending on the location of the home.

Hazard Insurance

This is a contract that protects you from any financial losses on your property that might result from fire, flood, or any other “hazards.”

Mortgage Insurance

This is an insurance policy that pays mortgage lenders for part of their financial losses if a borrower fails to fully repay a loan. Mortgage insurance makes it possible to buy a home with a low down payment.