Mortgage payments are comprised of your principal and interest. Principal, meaning the loan balance or the loan "principal amount". Let's say you got a mortgage on a $200,000 home and put $10,000 which is equal to 5%. Your principal balance on day one would be $190,000. Your interest capitalizes per day on this $190,000 until you make a payment, of which the payment goes first towards interest and then the remainder goes to principal, thus reducing your principal and bringing you one payment closer to owning your home. Your second payment would be slightly less in interest and slightly more in principal. We are talking on dollars here, but still, it starts to move in that direction. Let this resonate and give importance to paying extra on your principal if you can. This will directly reduce your principal and reduce your interest. If you make it a habit early on, you will be on your way to big savings in interest NOT PAID, accrued equity, and the sweet desire of home ownership! 

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Fixed rate mortgages are a fixed payment. Lets say $1,000 a month. You would pay $1,000 a month for the life of the loan. Your first payment would be the most amount of interest and the least amount of principal whereas your last payment on year 30 would be the least amount of interest and most amount of principal. 

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****If you want to pay extra, do it on the day your payment is due. Also notify your lender/escrow company that this is your intent! Although you may have a great relationship with them, you should not rely on them to make the assumption for you. Communication is key, and if they have 100 other clients, they could easily overlook this. How? Well if you have an escrow account set up they may put it aside and save it for your taxes or insurance. Not a major problem, but not your intent. A phone call or email goes a long way! 

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What is an escrow account? It is an account you set up with a third party when you close on the property, where they combine your mortgage payment with your property taxes and insurance so you pay one monthly payment and they allocate your money for your insurance premium and set aside funds for your property taxes. This is very common as it simplifies the monthly payments for homebuyers.
 

I often have folks ask me, "Why is my mortgage payment more than it was last year?" 

Well the likely suspect is that your taxes and/or insurance have increased. If you have an escrow account set up and they bundle the whole payment, they you only see the dollar amount. While your fixed mortgage payment is the same, you are likely paying more for your taxes or insurance. 

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When you bundle your payment, it is called a PITI payment; Principal, Interest, Taxes, & Insurance. This is a common term you are likely to hear used. 

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In summary; know what you are paying and pay more if you can! This is likely the biggest financial decision of your life so be on your game and turn a 30 year mortgage into something shorter! 

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