Understanding PITI: What Makes Up a Mortgage Payment?

Estimated reading time: 5.5 minutes

A mortgage is a long-term loan that helps you purchase or refinance a house. A borrower pays down the loan through a series of monthly payments. These payments often contain four parts, which are often abbreviated as PITI.

While some borrowers only focus on the principal and interest of their mortgage loan, a mortgage lender will take all components of your monthly payment into consideration when determining the size of your loan. By paying attention to all aspects of your future mortgage payments will help you prepare for your long-term affordability.

How PITI Can Affect Your Mortgage Affordability

Your lender will closely examine your credit history and your gross monthly income to ensure your finances can handle a monthly mortgage payment. Your debt-to-income ratio compares your monthly debt obligations, such as your student loans or credit card payments, to your gross monthly income.

Your ideal debt-to-income ratio is determined by your loan program. However, a lower ratio is generally better.

What are the Four Parts That Make Up a Mortgage Payment?

The four components of a mortgage payment are the principal, interest, taxes, and insurance (often referred to as PITI).

Your mortgage payments follow an amortization schedule, which provides a detailed breakdown of how each payment is applied to each of the four components. Taxes and insurance are generally estimated and collected through an escrow account, rather than being amortizes.

Using a mortgage calculator can help you visualize what your estimated monthly mortgage payment may look like based on the home’s listing price, your down payment amount, interest rate, and loan term. Our mortgage calculator also has an additional tab with an estimated payment schedule. There, you can look at a graph that breaks down what component of your loan is being paid down.

Our mortgage calculator is intended for illustrative educational purposes only. The figures listed may vary based on the specific terms of the loan selected, verification of information, credit history, and other factors.

What is PITI?

P – Principal

The principal of your mortgage loan is the amount you borrow from your mortgage lender to buy your home. For illustrative purposes, let’s say you’re purchasing a $200,000 home with a 20% down payment, or $40,000. The principal of your loan would become $160,000, which you would pay down over the length of your loan.

I – Interest

Your mortgage interest is the price you pay to borrow money from your lender. Your interest rate is set by your mortgage lender based on numerous factors; some that you can control and others that you can’t. Your interest rate may be fixed and stay the same over the lifetime of your loan or be adjustable based on a schedule.

In general, a higher interest rate translates to a higher monthly payment. You can use our mortgage calculator to explore what your monthly mortgage payment may look like with different mortgage rates.

T – Taxes

The T in PITI stands for taxes—specifically, property taxes and/or school taxes. Depending on your location, they may be separate. Your property taxes are calculated on a per-year basis and are used for various local needs, such as emergency medical services, water and sewer infrastructure, public education, road construction, and other civil services.

The amount of money required for property taxes can vary, even within the same neighborhood. For example, a large home with an in-ground pool will have a lower assessed value when compared to a smaller house without amenities. Because of the lower assessed value, the smaller home would have lower property taxes.

While property taxes can sometimes be paid directly to a local municipality or county, many homeowners pay through a portion of their monthly mortgage payment. Your mortgage servicer will keep your property taxes in escrow and ensure the payment is made when it is due.

I – Insurance

The final “I” in your monthly mortgage payment breakdown stands for insurance. Homeowners insurance is typically required by your mortgage lender to protect you and your property from certain losses. It helps protect you from bearing the full financial cost of certain covered losses. Each insurance policy covers specific perils, although it largely depends on your state, the insurance provider, and the policy type, coverage options, and deductions.

You may also be required to pay mortgage insurance, which is paid by the borrower and protects your lender if you default on your loan. Whether or not your loan needs mortgage insurance is dependent on your loan type and your down payment amount.

Your insurance is typically kept in an escrow account, which is managed by your mortgage servicer.

What Costs are Not Included in PITI?

Some costs associated with homeownership or obtaining a loan are not part of your monthly PITI payment, including:

• HOA fees
• Closing costs
• Utilities
• Maintenance
• Repairs

Helping You Achieve Home Financing You Can Afford

Knowing what makes up your monthly payment and the other costs of your mortgage can help you comprehensively budget for homeownership. Our Loan Originators are here to help you reach your home financing goals. Reach out to us to get started.