PITI is an acronym standing for Principal, Interest, Taxes, and Insurance, which collectively form the components of a homeowner’s monthly mortgage payment.
Principal refers to the amount borrowed to buy the home. As you make payments, the principal balance reduces.
Interest is the cost of borrowing money from a lender, calculated as a percentage of the remaining loan balance. It is typically higher at the start of the loan term.
Taxes pertain to property taxes assessed by local governments, which can change annually based on the assessed value of the property and the local tax rate. These taxes are usually collected by the lender and held in escrow.
Insurance includes homeowner's insurance, which protects against damages or losses to the home, and may also encompass mortgage insurance if the down payment is less than 20% of the home's value.
Together, these elements determine the total monthly payment made to your mortgage lender, often collected and managed through an escrow account. Ensuring a clear understanding of PITI is crucial for effectively budgeting and managing expenses associated with homeownership.