When you purchase your first house, you may be confused by the payment amount.  You may be staring down your first statement and asking: what goes into my mortgage payment?  For many first-time buyers, your payment is comprised of four components: principal, interest, taxes, and insurance.  More rarely, you may have an interest-only mortgage, but a standard home purchase will encompass these four areas.

The principle portion of your mortgage payment is likely to be the smallest component at first.  This pays off the money the bank spent to purchase your home on your behalf.  Most mortgages will allow you to make additional principle-only payments if you so desire so that you can pay off the loan faster.  Check your loan documents carefully for details.

The interest is the amount you are paying to borrow the money.  For example, if the bank loaned you $100,000, your first payment due in 30 days will include an interest portion for 30 days of borrowing the full amount.  This portion goes down as you pay off the principle bit by bit.

Next is the tax portion.  Your financial institution does not want you to lose your home to unpaid property taxes, so they are normally paid monthly, placed into an escrow account, and then paid yearly on your behalf.  You should receive proof that your property taxes have been paid.  It is also possible that there is no tax portion in your mortgage payment and you are expected to pay them independently.  Contact your lender if you have any doubts whatsoever as to how to satisfy your tax obligation.

Finally, if you put down less than 20 percent on your home, you will have to pay private mortgage insurance (PMI).  Once you reach 20 percent equity in your home, call and ask for this to be removed.

By understanding exactly how your mortgage payment is calculated, you can avoid having any surprises with tax bills or other confusion.