What is PITI?
A mortgage is a type of loan used to purchase a home. It is an agreement between a borrower and the mortgage lender to pay the loan amount over a set number of years, along with interest. Your monthly mortgage payment consists of four key components known as “PITI” (Principal, Interest, Taxes, and Insurance).
Principal is the loan amount. For example, if you bought a home for $250,000 and put $30,000 down, your mortgage will be $220,000—this is your principal. Homeowners pay more to their principal at the end of their loan term.
Interest is a percentage of the principal mortgage lenders charge for borrowing the money. Interest is typically paid for the life of the loan. Homeowners pay less interest towards the end of their loan term.
Homeowners can choose to include an escrow account on their monthly mortgage payment to help balance the amount needed for yearly property taxes.
If homeowners choose to put funds into an escrow account for taxes, they can also choose to escrow their homeowner insurance. Homeowners often pay towards two types of insurance: property/homeowner insurance and mortgage insurance.
Property/Homeowner insurance is required for every homeowner with a mortgage and is a separate obligation to mortgage insurance. The type of mortgage insurance depends on the loan types. Conventional loans, for example, pay Private Mortgage Insurance (PMI) while FHA loans pay towards Mortgage Insurance Premium (MIP).
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