 Sam
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 Posted: Sat Apr 03, 2004 3:31 am Post subject: PITI: Components of Monthly Mortgage Payment |
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PITI stands for the components of a monthly mortgage payment. The monthly payment includes the following costs:
- Principal: Principal is the amount of mortgage loan taken or the part of the loan (excluding the interest) yet to be paid off. It is a part of the monthly payment that reduces the outstanding balance of a mortgage.
- Interest: Interest is the fee charged by the lender on a monthly basis for borrowing a certain amount of money. It is expressed as an annual percentage of the principal loan amount. The rate of interest depends on the credit risk of the borrower and the inflation rate.
- Taxes: The PITI includes the payment of property taxes assessed by government agencies. The agencies collect these taxes on the property to pay for local services.
- Property Insurance: The property insurance policy provides coverage against theft, fire hurricanes and disasters.
The taxes and insurance payments are paid out of an escrow account. Such a policy protects the lender from tax liens and uninsured losses that the borrower fails to repay. But the lender may ask the borrower for lump sum amount if the taxes and insurance payments are due for a large number of months.
The part of the monthly payment covering the principal and interest charges is determined by the rate and the mortgage amount. The rate depends on your credit score, discount points and the down payment you make on the loan. The amount of the monthly payment towards the principal and interest changes with time depending upon the amortization schedule prepared for loan repayment. |
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