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What is included in a Mortgage Payment? PITI explained!

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What is included in a full mortgage Payment?

 

For starters, this is meant to detail out what is generally included in a mortgage payment. There are many variations of what can be included and what would be included for your scenario, but this post is meant to show what most of the homeowner’s mortgage payment will include. We will be discussing a fixed interest rate, fully amortizing mortgage. This means the rate will not change throughout the mortgage and the balance will be fully paid off at the end of the term.

 

Click here or an unbiased excel based mortgage payment and amortization schedule calculator.

 

What does the PITI or PITIA payment mean?

 

Often a full mortgage payment is referred to as a PITI payment, if you have never heard this term before it can be quite confusing. Let me break it out for you:

 

Let us start with the most common two:

P:Principal

The principal portion of the payment is what goes towards paying down the balance of the loan. Most mortgages now days are fully amortizing mortgages meaning all the full balance will be paid by the completion of your term.

I:Interest

The interest portion of the payment goes towards paying the interest accrued on your mortgage. Most often this is a fixed rate meaning the percentage you pay is fixed throughout the life of your loan. If you opted for a variable or adjustable interest rate mortgage this portion can vary.

 

On most mortgage statements the Principal and Interest payment will be grouped together into one portion. On a fixed interest rate mortgage, the total of principal and interest you pay each month will not change. As you move through the mortgage term the amount that is applied towards principal and interest will shift but the combined amount will remain unchanged. Review your mortgage amortization schedule to see the exact amount that would be applied to principal or interest at a given point in your term.

 

Now onto the less talked about portions:

 

T: Taxes

Taxes are a commonly forgotten item in the mortgage payment. Each state has property tax, and the amount varies from state to state, but generally each individual county will determine the rate at which property is taxed. That rate called the levy rate is then multiplied by the county’s assessed value of the property to determine the yearly property tax.

Then take the yearly property tax and divide it into the amount of payments your loan requires you to make through the year. Loans on a monthly repayment structure would be divided by 12.

I:Insurance

The insurance portion covers two different types of insurance: property insurance and mortgage insurance.

               Property Insurance

Property insurance covers the property itself. It is required by most lenders when a mortgage is secured against the property. This is insurance helps you if something should happen to the property.

Hazard insurance or general property insurance is required on all properties.

There are other types of insurances that may or may not be required. Such as Flood Insurance, required only when the property is located within the boundaries of a flood zone. Others might include: Fire Insurance, Wind Insurance, Earthquake Insurance, etc.…

               Mortgage Insurance (PMI, MIP, MMI or MI)

Mortgage Insurance (MI), Private Mortgage Insurance (PMI),Mortgage Insurance Premium (MIP), and Monthly Mortgage Insurance (MMI) are all different variants of roughly the same thing: Insurance for the lender in the event you default on your loan.

Different mortgage programs have different requirements for mortgage insurance and how it is structured. Not all scenarios required mortgage insurance and that is why it is important to know your options.

A: Association Dues

Another thing that could possibly be included in your mortgage payment are Homeowners Association Dues. If the property is apart of a Homeowners Association, it is possible there is a monthly or yearly due required to be paid. These are not always required to be included in the mortgage payment, but it is possible.

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Brady William Bell
Mortgage Loan Officer
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Brady@BellFinGrp.com