Monthly Payment
The regular amount a borrower pays each month on a mortgage loan, typically including principal, interest, taxes, and insurance (PITI). The principal and interest portion pays down the loan balance and covers borrowing costs, while the taxes and insurance portions are held in escrow by the lender. This payment amount remains constant for fixed-rate loans but can change for adjustable-rate mortgages.
Example
“Her monthly payment of $1,650 includes $1,200 for principal and interest, $300 for property taxes, and $150 for homeowners insurance.”
Memory Tip
Picture a calendar with money attached to each month - that's your monthly payment flying away every 30 days.
Why It Matters
The monthly payment determines whether a borrower can afford a particular mortgage and home purchase. Lenders use debt-to-income ratios based on monthly payments to qualify borrowers, making this figure crucial for determining buying power.
Common Misconception
Many borrowers think their monthly payment only covers the loan amount, not realizing it typically includes property taxes, homeowners insurance, and possibly mortgage insurance.
In Practice
On a $300,000 mortgage at 6.5% for 30 years, the principal and interest payment would be about $1,896, but the total monthly payment might be $2,400 when including property taxes ($300), homeowners insurance ($150), and mortgage insurance ($54).
Etymology
The concept evolved from medieval "month's mind" payments and became standardized with modern banking, combining "month" (from Latin "mensis") with "payment" (from French "paiement").
Common Misspellings
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