Your monthly mortgage payment is the combination of a payment toward principal reduction, monthly interest, property taxes, homeowners insurance and mortgage insurance if applicable. Each of these items plays an important role in your home loan.
The amount of money borrowed to buy your home or the amount of the loan that has not yet been repaid to the lender. This does not include the interest you will pay to borrow that money. The principal balance (sometimes called the outstanding or unpaid principal balance) is the amount owed on the loan minus the amount you've repaid.
The cost you pay to borrow money. It is the payment you make to a lender for the money it has loaned to you. Interest is usually expressed as a percentage of the amount borrowed.
A paid government levy based on the market value of privately owned property, sometimes referred to as real estate tax. Real estate tax rates will vary based on the area you live in.
Hazard or homeowners insurance protects you and the lender from loss or damage to the property. It should cover at least the loan amount. Usually, the comprehensive hazard insurance policy will include general coverage for personal liability, personal property, some medical payments, perhaps even some expenses. Separate insurance policies may be required for natural disasters such as flood.
Insurance provided by a private company to protect the mortgage lender against losses that might be incurred if a loan defaults. The borrower usually pays the cost of the insurance and is most often required if the loan amount is more than 80% of the home's value. Sometimes referred to as private mortgage insurance or mortgage insurance premium.
A hazard or homeowners insurance policy does not cover flooding damaged by water during storms or other natural flood situations. If you obtain a mortgage from a federally regulated or insured lender and buy a home in a high-risk flood zone as determined by the Federal Emergency Management Agency, you will be required to buy flood insurance. While flood insurance can be purchased through many different companies, all policies are federally regulated.
Homeowner Association Fees (HOAs) are a monthly payment that assists with maintaining and improving certain types of residential property. If you purchase or own a condominium HOA fees are almost always assessed, however they may also apply in planned unit developments (PUDs) and single family residential neighborhoods.