PITI: the four main parts
| Part | What it is |
|---|---|
| Principal | The portion that pays down the loan balance. |
| Interest | What the lender charges for the loan, based on your rate and balance. |
| Taxes | Property tax, often collected monthly and paid by the lender from escrow. |
| Insurance | Homeowners insurance, also often paid through escrow. |
Many loans add PMI (private mortgage insurance) and some homes have HOA dues, which may be paid separately.
What is escrow?
An escrow account is held by your loan servicer. Part of each monthly payment goes into it, and the servicer pays property tax and insurance bills when they are due. Because taxes and premiums change, the escrow portion of your payment can go up or down after an annual review.
When is PMI required?
Conventional loans usually require PMI when the down payment is under 20% of the home price. PMI protects the lender, not you. On many conventional loans it can be removed once you reach about 20% equity, and it generally ends automatically around 22% equity based on the original value. FHA loans use a different mortgage insurance premium (MIP) with its own rules.
Why early payments are mostly interest
Interest is charged on the remaining balance. At the start the balance is highest, so most of the payment goes to interest. Over time the split shifts toward principal.
15-year vs. 30-year (same rate, for illustration)
| 30-year | 15-year | |
|---|---|---|
| Monthly principal & interest | $1,896 | $2,613 |
| Total interest | $382,633 | $170,398 |
A 15-year loan costs more per month but far less in total interest. In practice, 15-year loans often come with slightly lower rates, which widens the gap.
How much house can you afford?
Lenders look at your debt-to-income (DTI) ratio. A commonly cited guideline is the 28/36 rule: housing costs at or below about 28% of gross monthly income, and total debt payments at or below about 36%. Actual lender limits vary by loan type and credit profile.
Costs beyond the monthly payment
- Closing costs: lender fees, title, appraisal, and prepaid items — often a few percent of the loan amount.
- Maintenance: many owners budget around 1% of the home's value per year for repairs.
- Utilities and moving: see the moving checklist.
Questions
What does PITI stand for?
Principal, interest, taxes, and insurance — the four main parts of a typical monthly mortgage payment.
Can my mortgage payment change with a fixed rate?
Yes. Principal and interest stay the same on a fixed-rate loan, but the escrow portion for taxes and insurance can change each year.
How do I avoid PMI?
Put at least 20% down on a conventional loan, or look into loan programs with different insurance rules. Once you reach enough equity, you can often ask to cancel PMI.
Do extra payments lower my monthly payment?
Usually not — they shorten the loan and reduce total interest. Some lenders offer a recast to lower the payment after a large principal payment.