Posted on 07/25/2014

Principal, Interest, Taxes and Insurance (PITI)

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During the mortgage process, you may see the acronym “PITI” in reference to your monthly mortgage payment. “PITI” stands for the sum of monthly principal, interest, taxes, and insurance. PITI can also include homeowners association fees, if applicable.

With a fixed-rate mortgage, principal and interest will remain the same for the life of the loan. Taxes and insurance are typically paid into an escrow account, a financial instrument created in order to store money collected by a lender. When taxes and insurance are due, the lender pays them for the borrower out of the escrow account. If condominium and homeowners association fees or mortgage insurance are applicable, these will also be paid into an escrow account. This amount of your mortgage can increase or decrease over time.

Principal – the sum of money lent to you on which interest is paid.
Interest – the charge for borrowing money.
Taxes property taxes are assessed by the value of the property. Taxes are assessed by the local government.
Insurance – includes homeowners, also known as hazard, insurance and private mortgage insurance, if applicable.
Looking for more information on buying a home? Our Mortgage 101 Handbook is the ultimate guide for First Time Home Buyers.

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