What does the term PITI represent in mortgage loan payments?

The term PITI stands for Principal, Interest, Taxes, and Insurance, which are the components typically included in a mortgage loan payment. Understanding each element is crucial for borrowers to assess their monthly financial obligations related to home ownership.

• Principal refers to the portion of the loan amount that is being paid down with each installment. This is the actual value borrowed from the lender which the borrower needs to repay over time.

• Interest is the cost of borrowing the money, expressed as a percentage of the loan amount. This payment generally decreases over the life of the loan while the principal balance is being paid down.

• Taxes typically refer to property taxes, which are assessed by the local government and are usually included in the monthly mortgage payment and held in escrow until they are due.

• Insurance often includes homeowners' insurance, which protects the property against damage and liability, as well as potentially mortgage insurance if the borrower made a smaller down payment.

By including all these components in the mortgage payment, borrowers can better understand the total out-of-pocket expenditure linked to home ownership, beyond just repaying the loan itself. This comprehensive view enables them to budget effectively for their financial commitments.