What's in a Mortgage Payment?

You may have heard the term PITI regarding the breakdown of a total monthly mortgage payment. Lenders look at an entire PITI payment, not just principal and interest when determining how much a buyer may qualify for.

P - Principal
The amount of your mortgage loan’s principal balance repaid each month. This amount never changes during a loan term.

I - Interest
The ongoing cost/fee a Borrower pays for the home loan. A home loan with a fixed interest rate will never change during the term of the loan. A loan with an adjustable interest rate will change upon loan term.

T - Taxes
Real estate or property taxes for city and county are held in an escrow account. The rate of taxation can change from year to year, and properties can be reassessed upon resale,

I - Insurance
Homeowners' insurance, also known as hazard insurance is held in an escrow account. Typically a buyer will pay for a year upfront. -- Other insurances which may be required are Flood Insurance when the property is located in a flood zone and Mortgage Insurance also known as PMI - Private Mortgage Insurance when a borrower puts less than 20% down.

Most homeowners make one monthly payment to their mortgage loan servicer. The servicing company then distributes the monies due to the insurance company and tax authority from an escrow account and applies the principal and interest to the balance.

NOTE: A mortgage payment does not have to be paid with PITI and can be paid separately. A buyer would have to send the four parts of the PITI payment to separate collectors. -- Mortgage payments (consisting of principal and interest) are typically due monthly to your loan servicer; real estate taxes are due twice a year to your local authority, and homeowner’s insurance is due to your insurer monthly.

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