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Oct 20, 2021

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Your monthly mortgage payment is typically made up of four components: principal, interest, taxes, and insurance – together known as PITI. Take a look at your mortgage statement. Here's what you can expect:

Principal and interest

The principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. The interest is the fee charged for borrowing money. Principal and interest are the bulk of your monthly payments in a process called amortization, which reduces your debt over a fixed period. With amortization, your initial monthly payments are largely interest, and as the loan matures, a greater portion of your payment is allocated toward the principal.

Taxes

Taxes refer to property taxes your community levies, which are generally based on a percentage of the value of your home. Your mortgage payment includes 1/12’th of the yearly property tax bill each month. The lender collects taxes in advance and places the money in an escrow fund.

Insurance

When you closed on your home, your lender required you to have hazard or homeowner’s insurance to cover your home and personal property against losses from fire, theft, bad weather, and other causes. Homeowners insurance is collected and paid much like your taxes. Each month, 1/12’th of the insurance bill is collected and stored in an escrow account until the bill is due. If you put less than 20% down or are using an FHA loan, expect mortgage insurance fees to also be on your statement. Mortgage insurance is meant to protect the lender against losing their investment.

Ready to purchase a new home or refinance?

Meet with a Caliber Loan Consultant today. We’re ready to review your income, assets, and credit status to help you be mortgage-ready and answer all your questions.

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