What are the components of a mortgage payment?
A mortgage payment typically consists of the principal, interest, taxes and insurance (PITI). The principal is the original amount of money loaned. The interest is the fee charged for borrowing the principal. Taxes refer to property taxes charged by the community based on the value of your home. An insurance policy covers your home and your personal property against losses from fire, theft, bad weather and other causes. The insurance amount is collected and paid much like the taxes. Each month 1/12th of the insurance bill is collected and stored in an escrow account until the bill is due. Even if you pay cash for your home, it is a good idea to buy hazard insurance in the event your home is damaged or destroyed. Principal and interest comprise the bulk of your monthly payments in a process called amortization, which reduces your debt over a fixed period of time. With amortization, your initial monthly payments are largely interest, and as the loan matures, a greater portion of your pay
The mortgage payment consists of the Principal, Interest, Taxes, and Insurance (PITI). You may also be required to pay PMI on a monthly basis. Principal – The amount of the payment that is applied to the loan balance. Interest – The charge paid for borrowing money. Taxes – Property taxes. Insurance – This is insurance that protects your home (required by the lenders). The PMI (mentioned above), is mandatory for homeowners who purchase a home with a down payment of less than 20% of the home’s cost.
