The costs that make up the main part of the payment is known by the acronym PITI. It stands for principal, interest, taxes and insurance.
(P) PRINCIPAL The amount of the original loan that is left to repay. It does not include interest.
(I) INTEREST The cost you pay for borrowing money. The interest is paid in monthly increments for the life of your loan.
(T) TAXES The amount you pay to your taxing authority for your property taxes. Your monthly property tax payment is approximately 1/12 of the total property tax for the year.
(I) INSURANCE The amount you pay to protect your home and contents, and can help protect you from liability claims or lawsuits for accidents on your property. Your monthly homeowner insurance payment is approximately 1/12 of the total insurance payment for the year.
OTHER COSTS Your mortgage payment may include a cost for mortgage insurance which protects the lender in the event you default on your loan. Depending on the type of loan you will pay either a Mortgage Insurance Premium (MIP) or Private Mortgage Insurance (PMI).
MORTGAGE INSURANCE PREMIUM (MIP) If you have a Federal Housing Administration (FHA) insured loan, you are required to pay monthly a monthly mortgage insurance premium for the life of the loan.
PRIVATE MORTGAGE INSURANCE (PMI) If you have a conventional mortgage that is more than 80% of the total value of the home you are required to have PMI. However, once the loan to value is less than 80% PMI is no longer required. As a result, your monthly mortgage payment will decrease.
HOMEOWNER’S ASSOCIATION (HOA) FEES an HOA is an organization that enforces the covenants and rules for the community and maintains shared property. The HOA fee is not included in your mortgage payment, however, you should budget for this expense. Failure to pay the annual HOA fee can result in a lien being placed on your property.