Your monthly mortgage payment typically is made up of four components: principal, interest,
taxes and insurance, together known as PITI. The principal refers to the part of the monthly
payment that reduces the remaining balance of the mortgage. The interest is the fee charged
for borrowing money. You can determine the amount of principal and interest by using our
Mortgage Payment Calculator.
The taxes are property taxes your community levies which are generally based on a percentage
of the value of your home. The lender usually collects 1/12th of the yearly property tax
bill each month. The lender collects taxes in advance and places the money in an escrow fund.
Lenders won't let you close on your home loan if you don't have home insurance to cover 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 home 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 payment is allocated toward the principal.
Use Our Mortgage Calculator To Calculate Your Monthly Mortgage Payment