PITI stands for Principal, Interest, Taxes, Insurance - the four ingredients of a typical US mortgage payment. Confusing "the payment on the loan" with "the check I write each month" is the single most common first-time-buyer surprise, and it can be a $400-600 gap. This guide breaks down each piece with real numbers you can reproduce in our Mortgage Calculator. (This article is educational only and is not financial advice.)
The Four Parts, One at a Time
- Principal - the slice that actually reduces what you owe. Early in a 30-year loan it is the smallest slice; how it grows over time is the subject of our amortization guide.
- Interest - the lender's charge on the remaining balance, recalculated monthly. In year one of a 6.5% loan, interest is roughly 85% of the P&I payment.
- Taxes - property tax owed to your county or city, typically 0.5%-2% of the home's value per year depending on the state. The lender collects one-twelfth each month into an escrow account and pays the bill for you.
- Insurance - homeowners insurance (required by every lender), plus private mortgage insurance (PMI) if you put down less than 20%.
Worked Example: A $350,000 Home
Buy a $350,000 home with 20% down ($70,000), borrowing $280,000 at 6.5% for 30 years. The amortization formula gives principal and interest of about $1,770 per month. Now add realistic escrow: property tax at 1.1% of value is $3,850 a year ($321/month), and homeowners insurance around $1,800 a year ($150/month):
| Component | Monthly | Share of payment |
|---|---|---|
| Principal + Interest | $1,770 | 79% |
| Property tax (1.1%/yr) | $321 | 14% |
| Homeowners insurance | $150 | 7% |
| Total PITI | $2,241 | 100% |
A bare-bones calculator says $1,770; the lender says $2,241. Neither is wrong - they are answering different questions. When you budget, use the PITI number, because that is what leaves your account. And remember the escrow part is not fixed: tax reassessments and insurance premium increases raise the total payment even on a fixed-rate loan.
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Put down less than 20% and most conventional lenders add private mortgage insurance, typically 0.3%-1.5% of the loan amount per year. On a $280,000 loan at 0.6%, that is $140 a month on top of everything above - insurance that protects the lender, not you. The good news: on conventional US loans you can request PMI removal once you owe 80% of the home's value, and it must end automatically at 78%. A smaller down payment is often still the right call to get into a home sooner - just price the PMI into the comparison rather than discovering it at closing.
15-Year vs 30-Year: The Honest Comparison
Same $280,000 loan, using a typical spread where the 15-year rate is about half a point lower (6.0% vs 6.5%):
| Term | Rate | Monthly P&I | Total interest |
|---|---|---|---|
| 30 years | 6.5% | $1,770 | ~$357,000 |
| 15 years | 6.0% | $2,363 | ~$145,000 |
The 15-year costs $593 more per month but saves about $212,000 in interest - on a 30-year loan you pay more in interest than you borrowed. The 30-year buys flexibility: a lower required payment, with the option to pay extra principal in good months and get much of the 15-year benefit without the obligation. Why long loans cost so much is the same balance-times-time math explained in our compound interest guide.
Frequently Asked Questions
What does PITI stand for?▼
Principal, Interest, Taxes, Insurance - the four pieces of a typical monthly mortgage payment. Principal and interest repay the loan itself; taxes and insurance are collected into an escrow account and paid out by the lender on your behalf. Lenders use the full PITI figure when deciding how much you can borrow.
Why is my quoted payment higher than online calculators showed?▼
Most simple calculators show only principal and interest. The lender adds monthly escrow for property tax and homeowners insurance, plus PMI if your down payment is under 20% and HOA dues if applicable. On a $280,000 loan, P&I of about $1,770 can easily become $2,200-2,400 once everything is included.
What is PMI and when does it go away?▼
Private mortgage insurance protects the lender when you put down less than 20%. It typically costs 0.3%-1.5% of the loan per year, added to your payment. On most US conventional loans you can request removal at 80% loan-to-value and it must drop automatically at 78%. FHA loans work differently - their premiums can last the life of the loan.
Do property taxes change my payment even with a fixed-rate loan?▼
Yes. The principal-and-interest part is locked, but the escrow portion is recalculated every year. If your property tax assessment or insurance premium rises, your total monthly payment rises with it. This surprises many first-time buyers who expected "fixed rate" to mean a fixed total payment.
Is a 15-year mortgage always better than a 30-year?▼
Not always - it is a trade-off. The 15-year saves an enormous amount of interest (often $200,000+ on a mid-size loan) and usually carries a lower rate, but the required payment is roughly a third higher. A common middle path is taking the 30-year for flexibility and voluntarily paying extra principal when you can.
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