Real Estate · 11 min
How Mortgages Work
Principal, interest, escrow — and why the early years feel slow.
A mortgage payment usually contains four parts: principal, interest, taxes and insurance. Early payments are weighted heavily toward interest, which is why equity builds slowly at first.
Rate and term change the total cost more than most buyers expect. A lower rate or shorter term can change lifetime interest by a very large amount.
Closing costs are separate from the down payment. Budget for both before you shop.
Key takeaways
- Payments cover principal, interest, taxes and insurance.
- Early payments are interest-heavy.
- Closing costs sit on top of the down payment.
Knowledge check
Why does equity build slowly in a mortgage's early years?
DisclaimerMoor Capital provides financial education and informational tools. Content is not individualized investment, legal, tax, credit-repair, or financial advice. Investing involves risk, including possible loss of principal.