August 29th, 2011
In his blog post “What’s in your mortgage payment?” Justin Mchood breaks down the average monthly mortgage payment.
P/I stands for principal and interest. This is the most basic component of your mortgage that you should have figured out long before you sign closing papers.
Each month you’ll pay some towards principal, or the actual cost of the house, and interest. Your first few payments typically go strictly towards interest, and the last few go towards principal.
T stands for taxes. Property taxes vary by location, but most cities and towns collect property taxes twice a year. Your lender will most likely include property tax in your
mortgage payment and then pay it on your behave. That way you pay a certain amount towards it each month and it’s put into an escrow account for when it’s due.
I is for insurance, or homeowner’s insurance. Like taxes, your lender will include instance in your mortgage payment and then pay it on your behave. That way you’ll pay 1/12 of your annual premium each month, and it will be put into an account for when the total is due.
M/I is for mortgage insurance, which you may or may not have depending on your lender and loan program.
Mchood offers this example:
Here is a simple example mortgage payment breakdown for a $200,000 loan at a 5% interest rate with a $1,200 annual property tax bill and a $1,200 annual insurance policy premium to insure the home with no mortgage insurance.
Principal / Interest = $1,074
Taxes = $100
Insurance = $100
Total PITI Payment = $1,274