Understanding Your Mortgage Payment
When you take out a mortgage, your monthly payment is typically referred to as PITI. This acronym stands for Principal, Interest, Taxes, and Insurance. Our calculator helps you break down these components so you know exactly where your money is going every month.
Principal vs. Interest
The principal is the amount of money you borrowed to buy the home. The interest is the cost of borrowing that money. In the early years of a fixed-rate mortgage, a large portion of your monthly payment goes toward interest. Over time, this shifts, and more of your payment goes toward the principal balance.
The Role of Interest Rates
Your interest rate significantly impacts your monthly payment. Even a small difference of 0.5% can change your payment by hundreds of dollars over the life of the loan. Rates can be fixed (staying the same for the loan term) or adjustable (changing periodically).
Property Taxes and Insurance
While principal and interest make up your loan payment, property taxes and homeowners insurance are often held in an escrow account by your lender. The lender pays these bills on your behalf when they are due.
Tips for First-Time Homebuyers
- Check your credit score: A higher score often qualifies you for lower interest rates.
- Save for a down payment: While 20% is standard to avoid PMI (Private Mortgage Insurance), many loans allow for lower down payments.
- Get pre-approved: Knowing how much you can borrow before you shop helps you stay within budget.