Which components typically make up a mortgage payment?

The correct answer identifies the standard components that comprise a mortgage payment, which typically include principal, interest, taxes, and insurance. These four elements are often grouped under the acronym "PITI."

• Principal refers to the portion of the payment that goes towards reducing the loan balance.

• Interest is the cost of borrowing the money, which is calculated based on the remaining loan balance.

• Taxes typically refer to property taxes that may be collected monthly and held in an escrow account to ensure they are paid when due.

• Insurance usually involves homeowners’ insurance, which protects the property against potential damage, and may also include mortgage insurance if the down payment was less than 20%.

Considering the importance of each component, they collectively ensure that homeowners fulfill their financial responsibilities associated with owning a property. By including taxes and insurance in the mortgage payment structure, borrowers can manage these recurring expenses more effectively, ensuring they are accounted for and paid timely.

The other options either omit key components or misrepresent the nature of mortgage payments. For example, stating that only principal and interest make up a mortgage payment overlooks crucial responsibilities such as taxes and insurance, which are essential to maintaining home ownership and meeting legal obligations.