When you take out a mortgage to buy a home, your monthly payment will be made up of more than just the loan amount. A standard mortgage payment may include the following: Principal, Interest, Taxes, and Insurance – or PITI for short! Let’s break down each part of PITI so you can confidently understand your mortgage payment. Please note that the components of your payment may differ depending on the loan type or other factors.
The Components of PITI
Principal
The principal is the portion of your payment that goes directly toward the principal balance of your loan. When you first start making payments, you might find that only a small portion of your monthly payment will go toward the principal balance, but this will increase over time as you continue to make payments toward interest.
Interest
Interest is the cost of borrowing money from your lender, expressed as a percentage of your loan amount. In the early years of a mortgage, you’ll find a larger portion of your payment is applied to interest, but it will begin shifting to the principal over time.
Taxes
Property taxes are assessed by your local taxing authority and vary based on your home’s assessed value and local tax rates. Taxes may also include more than property taxes and may include municipal, district or other taxes depending on your taxing authority and where you live. Please speak to your Loan Consultant for specifics regarding taxes.
Insurance
Homeowners insurance protects your property and belongings from events like fire, theft, or other covered perils. If your down-payment is less than 20%, you may also be required to pay for private mortgage insurance (PMI), which protects the lender in case you default on the loan. Please speak to your Loan Consultant for specifics regarding insurance.
Understanding PITI is essential for first-time homebuyers as it provides a clear picture of how your monthly mortgage payment is allocated. Familiarizing yourself with these components will not only help you budget effectively but also empower you to make informed decisions throughout the home financing process!
Speak with a Pulte Mortgage Loan Consultant to explore home financing options and learn more about budgeting for your dream home.
