Many first-time homebuyers ask what’s the difference between my principal and interest payment and my total monthly payment?

The difference between your principal and interest payment and your total monthly payment is that your total monthly payment usually includes additional costs like homeowners’ insurance, taxes, and possibly mortgage insurance. 

The principal and interest payment on a mortgage is probably the main component of your monthly mortgage payment. The principal is the amount you borrowed and have to pay back, and interest is what the lender charges for lending you the money. 

Here’s how it works:

Principal + interest + mortgage insurance (if applicable) + escrow (homeowners’ insurance and tax) = total monthly payment.

If you live in a condo, co-op, or a neighborhood with a homeowners’ association, you will likely have additional fees that are usually paid separately, such as Homeowners Association Dues.

Although your principal and interest payment will generally remain the same as long as you make regular payments on time, your escrow payment can change. For example, if your home increases in value, your property taxes typically increase as well. 

When considering a mortgage offer, make sure to look at the total monthly payment listed on the written estimates you receive. Many homebuyers make the mistake of looking at just the principal and interest payment, leading to an unpleasant surprise when they learn their total monthly payment is much higher. You can find your estimated total monthly payment on page 1 of the Loan Estimate, in the “Projected Payments” section.

To make sure you can afford the mortgage, find out what your property tax and homeowners insurance bills will be, and calculate the total monthly payment yourself.  Unsure where to find this information? Ask your Real Estate agent or Lender