The monthly payment on your home can be broken down into several pieces. Along with paying back the mortgage debt you may have additional monthly costs depending on your loan type or how much you put down when purchasing the home. Your monthly payment may look like this:
Principal and Interest
This is the portion of the monthly payment that actually pays back the loan on the house. This payment is determined by how much you put down, the interest rate on the loan, and the term the debt is amortized over. For example, $100k purchase with 5% down ($5k), is a $95k loan amount. With an interest rate of 4% on a 30yr term, the monthly payment is $453.54. On a 15yr term with a rate of 3.25% the monthly payment is $667.54, which is much higher. As you continue to make payments, the portion each month that goes toward principal will increase while the portion paid to interest goes down. See the below graphic .
Knowing what your monthly paymen
t goes to each month is important. Don’t you want know where your money is going and why? When you get your car fixed you want to know the breakdown of that payment, right? The same thing applies to your monthly mortgage payment, you need to know and understand where your money is going and why.