A mortgage payment has four components: principal, interest, taxes, and insurance. The principal is the repayment of your loan amount. Interest is the profit that goes to the lender. The principal and interest are lumped together in your mortgage payment, and for the first few years of your loan, your payment will be going towards the total interest, before starting on the principal. Property Taxes are almost always required to be escrowed into your mortgage payment, incase of foreclosure, because they take priority over everything else. Insurance is also added into the escrow, to ensure that your property is always insured in the event of an emergency.

Because of how complicated mortgages are, Credit Karma offers this loan amortization calculator which shows the breakdown of each mortgage payment.

Other home related fees may include Homeowners Association fees or other special insurance related fees specific to your location. If you put down less than 20%, you will also have a Private Mortgage Insurance fee, which protects your lender.

If you want to pay off your mortgage early, you can do so, but refer to your loan documents for any applicable early repayment fees. If you want to repay your mortgage earlier, the best way to do so is to increase the monthly repayment amount, or make additional payments, and make sure your extra payments are going toward the principal, not the interest. Another trick is to pay bi-weekly, instead of monthly, which would add an additional payment each year. Before you decide to put additional funds into repaying your mortgage early, it it wise to ensure you have emergency savings and to pay off any higher interest debts first.

If your house if your primary residence (and not a rental property), and you live in one of forty-six states where it is available, you may be eligible for the homestead exemption, which allows homeowners to deduct a certain amount of their home value from their annual property taxes, in turn lowering your yearly tax liability.

Key Points:

  • 1Pay off higher interest loans before paying down your mortgage.
  • 2You can pay off a 30 year mortgage early by making additional payments.
  • 3Extra flood insurance may be necessary if you live in a flood prone area.

Most notably, making your final mortgage payment comes with a sense of pride.