A. Most loans are comprised of the following components that make up your total monthly bill:
- Principal repayment – the amount you actually borrowed;
- Interest – payment to the lender for the money you borrowed;
- Homeowners insurance – 1/12 of your home insurance bill which is used to insure your home against loss from fire, smoke, theft, and other hazards required by most lenders; and
- Property taxes – 1/12 of the property taxes you are required to pay.
For FHA loans and loans where you do not put down a 20% downpayment, the bank also add a Monthly Mortgage Insurance Premium to your mortgage payment.
NOTE: the banks collect your Homeowners Insurance and your property taxes as a convenience to you and pay them when the bills are due.