Mortgage Glossary: What Does PITI Mean?

There are lots of special terms that come up in the buying or selling real property, and it’s usually not practical for the average buyer or seller to learn all of them. It’s not overly difficult, really, particularly if you are working with a Realtor who can keep you informed. There are some words that you should be familiar with and PITI is one. Following is an explanation of the term PITI and of each of its letters.

P: Principal
The “principal” is the total base amount of money that you are borrowing from the lending institution in order to buy the property. This figure varies all the time even at the same price depending on how much of a down payment you make on the home and how much you consequently end up borrowing from the lending institution. The principal is usually the largest portion of the PITI equation.

I: Interest
Whenever you borrow money from a lender, you are charged interest. This is what the lender earns in order to loan you the sum you need. It is normally expressed as a percentage. Depending on the deal you have, the interest rate can remain fixed throughout the entire life of the loan or it can be variable, meaning it can be changed by stated factors reflecting the market and other factors.

T: Taxes
Even when buying a home, you can’t get away from paying your taxes. Taxes on property, though, go to local government jurisdictions like the county or city to pay for schools and infrastructure. When you purchase a home, the associated tax revenues help child care centers, hospitals, local schools and other facilities serve local residents. The tax amounts are usually included with your monthly mortgage payment and they are prorated each month. The lender passes the tax share to your appropriate government authority.

Another I: Insurance
It would be a serious mistake to have a home without being insured. Your home is your largest investment and a home insurance policy is vital to avoid sleepless nights of worry. There are many kinds of policies that you can decide on. Your insurance choices will vary depending on how much of a down payment you make on the property. If you make a down payment of less than 20 percent, lenders will require you to carry a certain policy that assures they will get their money if something happens to your home or if you go through a foreclosure. These payments are usually put together with your monthly mortgage payment.

There, that isn’t so hard, is it? When the term is broken down into its components and each of those components in explained and understood, we find that the mystery is removed. In the case of this word, it goes to the understanding of the loan that you might be applying for. That topic has become so very important, as we have seen in recent years with many people finding out the hard way that they need to understand absolutely everything about a mortgage loan! When it comes to paying your mortgage, being an informed consumer is part of the strategy of keeping the specter of foreclosure away from the door, and living in a home with the kind of security you and your family need and deserve.