Monthly Payments

Your mortgage loan will be repaid with monthly payments, which is basically comprised of principal and interest. Principal and interest comprise the bulk of your monthly payments in a process called Amortization, which reduces your debt over a fixed period of time.

For most people, the first consideration with regard to mortgage payments is the interest rate. Higher interest rates translate into higher payments; lower rates, lower payments. There are many factors that determine your interest rate. If you understand the factors that affect your rate, you will be able to get better prepared and make a better choice in finding the right mortgage for you.

More Info: What Determines Your Mortgage Rate?

In addition to principal and interest, your monthly payments will include property taxes and insurance premiums if escrow is used. When lenders underwrite your loan, they calculate your insurance and property taxes as if they were paid monthly. They deposit them in your escrow account and pay out later to the tax collector and insurer. Using escrow assures lenders that their investment (the loan’s collateral; your home) will be protected from being sold for nonpayment of property taxes or lost to a catastrophe for lack of insurance. You will have to pay property taxes and insurance premiums even if you don't need an escrow account and even after your mortgage is paid off.

More Info: Mortgage Escrow Accounts

PITI Payments

A monthly mortgage payment is often called a PITI payment, combining initial letters of those mentioned four components of a mortgage payment.

Principal: the loan balance, the sum of money you borrowed to buy your home.
Interest: interest owed on that balance, usually expressed as a percentage called the interest rate. As well as the given rate, the lender could also charge you points, and additional loan costs.
Taxes (real estate taxes): taxes assessed by different government agencies to pay for school construction, fire department service, etc.
Insurance (property insurance): insurance coverage against theft, fire, hurricanes and other disasters. If you put less than 20 percent down on your home purchase, your monthly payment will also include a separate levy for private mortgage insurance (PMI) or government-backed mortgage insurance premiums.

When applicable, you might have to pay additional costs such as:

Flood Insurance: if the house is located in a Special Flood Hazard Area, you are required to purchase flood insurance.
Mortgage Insurance: if your down payment is less than 20% of the price of the house, your lender may require you to purchase mortgage insurance to protect the lender from financial loss in case you do not repay.