Mortgage Payment Breakdown
What’s in a mortgage payment?
There are four parts of a mortgage payment: Principal, Interest, Taxes, and Insurance — or PITI for short. Here’s a quick breakdown of what the four parts are.
Principal
The total amount borrowed. This part of the payment reduces the remaining balance of a mortgage.
Interest
The fee that’s added on for borrowing money. Interest will stay the same with a fixed-rate mortgage and will increase or decrease with an adjustable-rate mortgage.
Taxes
The property taxes determined by the local government. Taxes are added to the payment if the lender is managing the escrow account.
Insurance
The homeowner's insurance amount that's determined by the policy selected. This part of the payment is for property insurance that covers any losses or damages to a home.
Other costs to consider
When you’re planning your budget, there are a few potential homeowner costs to consider. Here are some things to plan for in addition to your mortgage payment.
- Utilities
Think electricity, gas, trash removal, water and sewage. Don't forget the choice of utilities like internet and cable as well.
- Association fees
Sometimes homeowners are required to join a homeowner's association and follow the community's regulations by paying monthly or annual upkeep fees.
- Yard maintenance
To obey city code and homeowner's association regulations, you'll either need to pay for yard maintenance services or yard equipment to do the job yourself.
- Upgrades
To keep your home up to date, you'll likely need to upgrade over the years. Consider the cost of fresh paint and remodeled rooms before and after you move in.
- Commuting
Depending on traffic and the distance between your home and work, the cost of gas can add up. Calculate your monthly cost to know what to expect.
- Pest control
To keep bugs out of your home, you'll need regular pest control. Frequency depends on the situation, but often bi-monthly treatment is recommended.
- Furniture and décor
If you're upsizing or moving into your first home you'll have a lot of empty space to fill. Make a furniture and décor shopping list, then calculate the cost. Just be sure not to make any big purchases that might impact your credit score before the mortgage is finalized.
- The unexpected
No matter how well you plan, there will always be unexpected homeowner costs. In case of damages or additional fees, keep a growing emergency fund.
What can you afford?
Use payment calculator to see how each of these might affect your payment.