What does PITI in mortgage payments stand for?

PITI stands for Principal, Interest, Taxes, and Insurance. This acronym is crucial in understanding the components that make up a typical monthly mortgage payment.

The principal is the amount borrowed to purchase the home, and as you make payments, you reduce this balance over time. Interest refers to the cost of borrowing that principal, which is charged by the lender; this is a significant part of the payment in early years of the loan, before more of your payment goes toward the principal itself.

Taxes are typically property taxes that are assessed by local governments and can be included in your mortgage payment if you have an escrow account, which helps ensure that these taxes are paid on time. Insurance generally refers to homeowners insurance, which protects both the homeowner and the lender against loss from fire, theft, and other hazards.

Including these components in your monthly budgeting is essential for understanding the total cost associated with home ownership. Hence, PITI covers all bases for a comprehensive look at what to expect in monthly mortgage payments.