What Makes Up a Mortgage Payment?

by US Mortgages / May 20, 2019

You may be thinking, “Why would anyone even spend time writing an article about a topic that is seemingly so simple?”

Like most things related to home mortgages, even seemingly simple things have much more detailed explanations and answers than many forget to consider – especially when you throw acronyms into the mix. There is the commonly known "P&I” for your principal and interest, and then there’s “PITI” (more to come on that below). At this point you might think, “That surely is the entirety of my mortgage payment”. However, more often than not there is likely more factoring into your mortgage payment.

For example, if you have an FHA loan then you will need to add monthly mortgage insurance to your total payment. If you have a conventional loan you will have to add PMI if your down payment or equity is not 20% or greater. In addition to this, many people forget about the very common HOA dues and supplemental costs from living inside of a covenant-controlled community. Here in Colorado, HOA fees are included in approximately 75% to 80% of all homeowners’ payments. While they may not be part of the payment you receive from your lender, they will be calculated as a total payment you are obligated to from the underwriter that’s reviewing your loan to ensure that you can adequately afford all monthly recurring costs. These HOA fees can vary from as little as $10 to $20 a month to an excess of several hundred dollars per month.

Here is a simple breakdown to better understand the commonly known term associated with PITI:

  • P stands for principal
  • I stands for interest
  • T stands for taxes
  • I stands for insurance

As mentioned above, PITI is generally known to encompass the total amount of the mortgage payment you will be obligated to each month. However as you read through this you may realize the additional factors that impact the true and total cost of your monthly payment.

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For those who have already bought a home you may have learned the hard way. What you thought would be your payment (e.g., by using an online mortgage calculator or what someone told you what the principal and interest would be) was likely vastly different from the actual amount you pay when taxes, monthly mortgage insurance, and HOA fees come into the picture.

Our hope is that this simple explanation and breakdown makes something that can be confusing much more understandable. Remember it’s the things that you don’t see, or the questions you don’t ask, that can wind up costing you the most money. A good realtor and/or mortgage lending company should always give you full disclosure as to what will affect the true cost of home ownership.

If you have any further questions or want to know more about something not addressed in this article, please feel free to reach out or call us anytime.

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Tags: Home Buying

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