Your mortgage payment typically consists of the following components, often referred to as PITIA:

• Principal: This is the portion of your payment that goes towards reducing the original loan amount.
• Interest: This is the cost of borrowing money, calculated as a percentage of the remaining loan balance.
• Taxes: Property taxes that are paid to your local government. These are often collected by your lender and held in an escrow account.
• Insurance: Homeowners insurance, which protects your property from various risks, such as fire or theft. This is also often included in your escrow account.
• Association/Maintenance Dues: Only applicable if your property is in a planned development, or your property is a condominium or co-operative unit.  Typically collected by your lender and held in an escrow account.

Choosing the right mortgage depends on your financial situation, goals, and risk tolerance. Fixed-rate mortgages offer consistent payments over time, making budgeting easier. Adjustable-rate mortgages (ARMs) might start with lower rates but can adjust over time. To determine the best fit, consider your long-term plans, how long you intend to stay in the home, and your comfort level with potential rate changes.

The index is a benchmark interest rate that reflects market conditions, like the prime rate or the LIBOR. The margin is a fixed percentage added to the index to determine your actual interest rate. For example, if the index is 3% and your margin is 2%, your ARM’s rate would be 5%.

A fixed-rate loan maintains the same interest rate and monthly payment throughout the life of the loan. This offers stability but might have a higher initial rate. An adjustable-rate loan starts with a fixed rate for a set period, then adjusts periodically based on an index. Initial rates are often lower, but future adjustments can lead to rate increases.

Determining your affordable home price involves considering your monthly income, existing debts, down payment, and the interest rate. A common guideline is the 28/36 rule: your mortgage payment should not exceed 28% of your gross monthly income, and your total monthly debt payments should not surpass 36%. A mortgage preapproval from a lender can provide a clearer picture of your affordability.

For most homeowners, the monthly mortgage payments include three separate parts:

Principal: Repayment on the amount borrowed
Interest: Payment to the lender for the amount borrowed
Taxes & Insurance: Monthly payments are normally made into a special escrow account for items like hazard insurance and property taxes. This feature is sometimes optional, in which case the fees will be paid by you directly to the County Tax Assessor and property insurance company