PITI is an acronym in the mortgage industry that stands for Principal, Interest, Taxes, and Insurance. It represents the total monthly expenses associated with maintaining a mortgage. Understanding PITI is crucial for homeowners to assess the total monthly cost of their mortgage.
Principal refers to the amount of money borrowed to purchase the home, while Interest is the charge paid to the lender for borrowing that money. These two make up the main components of the monthly mortgage payment.
Taxes in PITI refer to property taxes, which are levied by local governments. These taxes are typically based on the value of the property and are used to fund local services.
Insurance in PITI includes homeowners insurance, which covers damage to the property, and may also include private mortgage insurance (PMI) if the down payment was less than 20%.
Consider a homeowner with a $200,000 mortgage at a 4% interest rate, annual property taxes of $2,400, and annual homeowners insurance of $1,200.