What’s in Your Monthly Mortgage Payment? Understanding PITI

Buying a home is exciting, but before you sign on the dotted line, it's important to understand what your monthly mortgage payment actually includes. Many first-time buyers assume they’re only paying off their loan, but your mortgage payment is made up of several components—often referred to as PITI:

Principal – Paying off your loan balance
Interest – The cost of borrowing money
Taxes – Your property taxes
Insurance – Homeowners insurance (and possibly mortgage insurance)

If you're wondering, "How much will my monthly mortgage really be?", this guide will break it all down for you!

1. Principal (P) – Paying Down Your Loan

The principal is the amount of your payment that goes toward reducing your loan balance. In the early years, a smaller portion of your payment goes toward the principal, but over time, more of your payment reduces the amount you owe.

For example, if you borrow $250,000, a portion of your monthly payment will go toward lowering that balance.

2. Interest (I) – The Cost of Borrowing Money

Interest is what the lender charges you for borrowing money. Your interest rate is based on several factors, including:
Your credit score
The loan type (FHA, conventional, VA, etc.)
The current market rates

The lower your interest rate, the less you'll pay over time. That’s why improving your credit score before applying for a mortgage can save you thousands!

3. Property Taxes (T) – Funding Your Community

Your property taxes help pay for local services such as schools, emergency responders, roads, and city maintenance.

Example: If your home is valued at $300,000 and your local tax rate is 1.25%, your annual property tax would be $3,750, or about $312 per month.

Lenders typically include this amount in your mortgage payment and hold it in an escrow account to ensure your taxes are paid on time.

4. Homeowners Insurance (I) – Protecting Your Investment

Homeowners insurance covers damage from fire, storms, theft, and other unexpected events. Your lender requires you to carry insurance since your home is the collateral for the loan.

If you live in a flood or earthquake-prone area, you may need additional coverage, increasing your monthly payment.

Bonus: Private Mortgage Insurance (PMI)

If you put less than 20% down, you may be required to pay Private Mortgage Insurance (PMI), which protects the lender in case you default on your loan.

PMI typically costs 0.3%–1.5% of the loan amount per year and is added to your mortgage payment. The good news? Once you reach 20% equity, you can request to have PMI removed!

Real-World Example: What Does a Monthly Mortgage Payment Look Like?

Let’s say you buy a $300,000 home with a 30-year fixed mortgage at a 6% interest rate, putting 10% down.

Your estimated monthly payment could look like this:

Principal & Interest: $1,620
Property Taxes: $312
Homeowners Insurance: $100
PMI: $125
Total Monthly Payment: $2,157

Pro Tip: Use a mortgage calculator to get a rough estimate of your monthly payment, but always consult with a lender for an accurate breakdown based on your specific situation.

How to Know What You Can Afford

Before buying a home, make sure you:
Get pre-approved to see what loan amount and programs you qualify for
Calculate your total monthly payment, including taxes and insurance
Set a realistic budget that includes home maintenance and utilities

Final Thoughts: Let’s Find the Right Home for You!

Knowing your full mortgage payment is key to making a smart home-buying decision. Don’t let hidden costs surprise you—work with a Realtor who can guide you through the process and connect you with the right lender.

Thinking about buying your first home? Let’s talk! I can help you:
Understand what programs you qualify for
Find the best home within your budget
Navigate the home-buying process with confidence

Contact me today or schedule a consultation—let’s make your homeownership dream a reality!