What Goes Into a Monthly Mortgage Payment? (PITI Explained)
Many homebuyers are surprised to learn that their mortgage payment is higher than expected. That’s because a monthly mortgage payment usually includes more than just principal and interest. Understanding exactly what goes into your payment - commonly referred to as PITI - is essential for budgeting, loan approval, and long-term financial planning.
This complete guide breaks down every component of a mortgage payment, explains why payments change over time, and shows how lenders evaluate affordability using PITI. By the end, you’ll know exactly how to estimate your true housing cost before committing to a loan.
What Is PITI in a Mortgage Payment?
PITI stands for Principal, Interest, Taxes, and Insurance. These four components make up the core of most monthly mortgage payments. Lenders focus on PITI - not just principal and interest - because it represents your true monthly housing obligation.
While your loan agreement technically covers only principal and interest, taxes and insurance are usually collected through an escrow account and paid on your behalf. This is why your mortgage payment is often higher than the “loan payment” quoted on paper.
Principal: The Portion That Reduces Your Loan Balance
Principal is the amount of money you borrowed to purchase your home, minus your down payment. Each month, a portion of your payment goes toward reducing this balance.
Early in the loan, principal payments are relatively small because interest is calculated on a larger balance. Over time, as the balance decreases, more of each payment goes toward principal. This process is called amortization.
Interest: The Cost of Borrowing Money
Interest is what the lender charges for loaning you money. It’s calculated based on your interest rate and remaining loan balance.
Even a small difference in interest rate can significantly impact your monthly payment and total interest paid over the life of the loan. This is why comparing rates and loan terms matters just as much as the home price.
Property Taxes: A Major Source of Payment Changes
Property taxes are assessed by local governments and vary widely by location. Most lenders collect estimated taxes monthly through escrow and pay them when due.
Tax reassessments, especially after purchasing a home, are one of the most common reasons mortgage payments increase unexpectedly.
Homeowners Insurance: Required Protection
Lenders require homeowners insurance to protect the property securing the loan. Premiums are typically escrowed and included in your monthly payment.
Insurance costs can rise due to inflation, regional risk factors, or changes in coverage, which may increase your mortgage payment over time.
Mortgage Insurance: PMI, FHA MIP, and Program Fees
- Conventional PMI: Required when down payment is less than 20%.
- FHA MIP: Includes upfront and annual premiums.
- VA Funding Fee: One-time fee for eligible borrowers.
HOA Dues: Not PITI, But Part of Housing Cost
HOA dues are not part of the loan but are included in affordability and debt-to-income calculations. Ignoring HOA fees is a common budgeting mistake.
How Escrow Accounts Work
An escrow account collects taxes and insurance monthly. Each year, lenders perform an escrow analysis that may increase or decrease your payment.
Example: Monthly Mortgage Payment Breakdown
A $400,000 home with 10% down might have a $2,100 principal and interest payment - but after taxes, insurance, and PMI, the true monthly payment could exceed $2,800.
How Lenders Use PITI to Determine Affordability
Lenders use PITI when calculating debt-to-income (DTI) ratios. This is why qualifying for a loan depends on total housing cost, not just loan payment.
Estimate Your Full Mortgage Payment
Use our mortgage payment calculator to estimate your full monthly payment - including PITI, PMI, and HOA - and plan with confidence.
Calculate Your Mortgage Payment