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Usually a mortgage payment consists of three parts: principle, interest, and escrow. Each month your payment is applied to these three areas. Paying principle reduces the actual loan amount. Interest is the cost of the loan. The lender collects a portion of your taxes and insurance and places it into an escrow account he/she has set up. Once the proper amount is collected into this account the appropriate bill is paid. Thus the slang term you will hear is P.I.T.I., Principal – Interest – Taxes – Insurance. Back to Frequently Asked Questions
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