Your monthly mortgage payment is made up of several components – most commonly referred to as PITI (Principal, Interest, Taxes, and Insurance). If you live in a Townhouse, Condo, or live within areas that carries additional HOA (Homeowner Association) fees, that may also add to your total payment.

 

What exactly does the PITI do for you as a homeowner? Well, to help give you a quick overview…

 

Principal – is the remaining balance of the loan, excluding interest. Interest is calculated from the remaining principal.

 

Interest – is the charge for the use of the loan (money that you borrowed from the bank).

 

Taxes – the county assessor charges property tax based on the value of your home. Two tax installments are due each year. The first is due on November 1st and the second is due on February 1st.

 

Depending on the amount of your down payment, taxes may be impounded. An impound account is a trust account set up by the lender into which a portion of the monthly payment is credited. This way, funds will be available for the payment of taxes and insurance.

 

Insurance – pays for loss on a home from certain hazards. Your insurance depends on what type your purchase from your insurance agent. A standard policy pays for replacement cost, minus depreciation based on actual cash value. Your insurance agent can advice you about what types of insurance are available and best for your situation.

 

PMI (Private Mortgage Insurance) – depending on the amount of your down payment, you may be required to have PMI. This is for the protection of the lender: loans with small down payments involve substantially more risk, and mortgage insurance helps cover the lenders’ losses in the event of a foreclosure.

 

The cost of PMI varies according to the amount of your down payment. PMI may require an upfront fee, payable as part of your closing costs, in addition to a monthly payment.

 

FHA (Federal Housing Authority) also charges a fee for mortgage insurance called MIP (Mortgage Insurance Premium). An up-front fee (which may be financed) and a monthly fee are assessed. VA charges a funding fee which may also be financed.