Loans & Credit

Mortgage 101: Understanding Your PITI Payment

Published on September 26, 2025

When you're calculating the cost of homeownership, it's easy to focus only on the loan amount and interest rate. However, your total monthly housing payment is actually made up of four distinct components, commonly known by the acronym PITI. Understanding PITI is essential for accurate budgeting.

Breaking Down PITI

PITI stands for Principal, Interest, Taxes, and Insurance. Let's look at each part:

1. Principal

This is the portion of your payment that goes directly toward paying down the original amount you borrowed. In the beginning of your loan, the principal portion is small, but it grows larger over the loan's term.

2. Interest

This is the cost you pay to the lender for borrowing the money. The interest portion of your payment is highest at the beginning of the loan and gradually decreases over time.

3. Taxes

This refers to the property taxes levied by your local government. Lenders typically collect 1/12th of your estimated annual property tax bill with each monthly mortgage payment and hold it in an escrow account. They then pay the tax bill on your behalf when it's due.

4. Insurance

This is your homeowners insurance premium. Similar to property taxes, the lender collects 1/12th of your annual premium each month and pays the bill for you from the escrow account. This protects their investment (and yours) against damage from events like fire or natural disasters.

Why PITI Matters

Calculating your full PITI payment is crucial because it represents your actual monthly housing expense. A simple principal and interest calculation can be misleadingly low, causing you to underestimate what you can truly afford. Lenders use your PITI to calculate your Debt-to-Income (DTI) ratio when determining your eligibility for a loan.

By understanding and planning for all four components, you can budget effectively and ensure your journey into homeownership is a smooth and sustainable one.