How Mortgage Loan Payments Are Structured.

Most mortgage loans have 4 parts:

1. PRINCIPAL which is the repayment of the amount originally borrowed. Most loans are for 15 to 30 years.

2. INTEREST is the payment to the lender for the money that is borrowed. During the life of the loan, a homeowner will usually pay far more in interest than the amount originally borrowed. This is due to the methodology used in structuring loans which results in mainly interest being paid in the first years of the loan. In the final years of the loan the payments are mostly principal as opposed to being interest payments.

3. HOMEOWNERS INSURANCE is a monthly payment required by most lenders to insure the property against loss from fire, smoke, theft, and other hazards.

4. PROPERTY TAXES is the annual city or county taxes assessed on the property. This is divided by the number of mortgage payments made in a year.