Principal & Interest
vs.
Taxes & Insurance
Principal & Interest vs. Taxes & Insurance: What's the Difference?
When you look at a mortgage payment, the number you see each month can include several different costs. The two main parts are principal and interest, but your total monthly housing payment may also include property taxes and homeowners insurance.
Understanding the difference can make it easier to estimate the real cost of owning a home.
Use the [Mortgage Calculator] to estimate your monthly payment and see how different loan amounts, interest rates, and other costs can affect your results.
What Is Mortgage Principal?
Principal is the amount of money you originally borrow to purchase your home.
For example, if you buy a $300,000 home and make a $60,000 down payment, your starting mortgage principal would be $240,000.
As you make your monthly mortgage payments, part of each payment goes toward reducing this principal balance.
The lower your principal becomes, the less you owe on the loan.
What Is Mortgage Interest?
Interest is the cost of borrowing money from your lender.
Your interest rate determines how much interest you pay over the life of the mortgage. Generally, a higher interest rate means a higher monthly payment and more interest paid over time.
Early in a typical mortgage, a larger portion of your payment goes toward interest. As your principal balance decreases, more of your payment can go toward the principal.
Frequently asked questions
Is property tax included in a mortgage payment?
It can be. Many lenders collect property taxes through an escrow account along with the mortgage payment. However, the exact arrangement depends on the lender and loan.
Is homeowners insurance included in a mortgage payment?
It can be collected through escrow, but homeowners insurance itself is separate from the principal and interest on your mortgage.
Which part of a mortgage payment reduces my loan balance?
The principal portion reduces the amount you owe on your mortgage. Interest, taxes, and insurance do not reduce the mortgage principal.
Why is my total mortgage payment higher than principal and interest?
Your total payment may include property taxes, homeowners insurance, mortgage insurance, HOA fees, or other costs in addition to principal and interest.
Can taxes and insurance change over time?
Yes. Property taxes and insurance premiums can change, so your total monthly housing cost may increase or decrease even if your mortgage interest rate stays the same.
Try the Mortgage Calculator
Want to see how these costs affect your monthly payment?
Use CalculatorTool's Mortgage Calculator to experiment with different home prices, down payments, interest rates, loan terms, taxes, and insurance estimates.
Disclaimer
CalculatorTool provides estimates for informational and educational purposes only. Results are not financial advice and may differ from the actual costs offered by a lender, insurer, tax authority, or other provider. Always verify important financial details with the appropriate professional.