Most mortgage payments are made up of principal – the actual amount borrowed – and interest. The amount paid in interest decreases each month as the amount paid towards the principal balance increases.

Additionally, a mortgage payment will include real estate taxes and property insurance. The lender will collect and hold in escrow the estimated annual real estate tax and property (homeowner's insurance). The estimated total of these two expenses is divided by 12, and added to the monthly principle and interest owed. Both the real estate taxes and insurance are held in escrow until period payments are made on your behalf.

Mortgage programs have different qualifying requirements and different costs. Down payments, mortgage insurance, and interest rates vary between them. Federally insured mortgages, such as FHA or VA loans, have more flexible qualifying guidelines.

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A number of fees need to be paid when closing a mortgage. These are for services rendered to obtain the loan and may include property taxes, escrow services, title searches, appraisals and inspections, and mortgage insurance.

These costs include title report and title insurance fees, escrow servicing fees, recording fees, and loan origination fees. Expect these costs to equal 2.0% to 2.5% (and in some areas, up to 3.0%) of the total purchase price.

Depending on the type of loan you’re borrowing, the closing costs may be rolled into the mortgage. By law, the buyer and seller need to know about the closing costs and agree upon it prior to closing the real estate transaction.

When shopping for a mortgage, you’ll most likely have a number of interest rate options available. Interest rates change all the time and rates different greatly. Factors that affect interest rate include (but are not limited to) your credit score, the value of your home, and the down payment. Typically, you can get lower rates with mortgage brokers such as Old Town Lending, compared to banks and direct lenders. With banks, they usually offer you the maximum loan amount you can be approved for and that could result in higher rates.

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