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Home Financing Library

Total Mortgage Payment

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.

Taxes refer to property taxes owed generally based on a percentage of the value of your home. The lender may collect 1/12th of the yearly property tax bill each month and place this amount in an escrow account. As part of your loan, you’ll need to have hazard 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 may be collected and stored in an escrow account until property insurance is due. Generally, it is a good idea to have hazard insurance in the event your home is damaged or destroyed. If your home is in a flood plain, flood insurance is mandatory per federal guidelines. Additionally, mortgage insurance may be required if your down payment amount is less than 20%.

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.