Overview

The monthly mortgage payment usually is comprised of PITI or principal, interest, taxes and insurance. Additional items that may be included are PMI or private mortgage insurance as discussed below and HOAs or homeowner association dues. Below are the components of your payment discussed in more detail.

Principal

The original balance of your loan less principal that has been paid. This balance is what the interest cost is calculated from for each payment

Interest

This is the cost of borrowing money to buy your home based on the underwriting and approval of your loan. The interest is calculated on the outstanding principal loan balance, so over time you are paying more principal and less interest as the mortgage is paid down.

Taxes

The county assessor calculates the property tax based on the value of your home and there are installments due each year – November 1st (delinquent after December 10th) and February 1st (delinquent after April 10th). The taxes may be impounded depending on the lender requirements. An impound account is set up by the lender in order to remit taxes and/or insurance on your behalf to ensure that you stay current.

Insurance

An insurance policy pays for the loss of a home from certain hazards that you can obtain through your agent. The policy pays for replacement cost less depreciation and it is worth talking to your insurance agent about the different options available. Sometimes the insurance is included in your mortgage payment or sometimes it is outside of the loan and your lender will just need to see that you have sufficient coverage (i.e. condos are usually insured by the HOA) for exterior.

PMI

Known as private mortgage insurance, this is usually required for down payments of less than 20% because the loan has more risk and this additional insurance covers the lender in the event your home goes into foreclosure.  PMI usually runs 0.5-1% of the loan.