Understanding the elements of your mortgage payment is as easy as remembering five letters – P, I, T, I, A. The mortgage industry uses the acronym PITIA, which stands for principal, interest, taxes, insurance and Homeowner’s Association Fees to break down the components of a homeowners’ mortgage payments.
Every mortgage contains at least two parts: principal and interest. Principal is the amount of money you have borrowed for your home purchase and interest is the cost of borrowing that money. If you have a fixed-rate mortgage, your principal and interest will remain the same for the life of the loan.
The second two portions of a mortgage payment, taxes and insurance, are typically paid into an escrow account. Escrow is a financial tool created in order to store money collected by a lender. This allows the lender to collect funds to pay for items such as homeowners insurance, property taxes, and private mortgage insurance ,when a loan is greater than 80% of the property value.
When taxes and insurance are due, the lender pays them for the borrower from the escrow account, streamlining the process. This amount of a borrower’s mortgage can increase or decrease over time, even with a fixed-rate mortgage.
Lastly is the Homeowner’s Association Fee (HOA). Condominiums and townhomes (occasionally single family developments) typically have monthly association fees or dues. These fees, while paid by a homeowner directly to the association, are still considered part of the housing expense.
For example, the monthly mortgage payment for a homebuyer purchasing a $180,000 home with a 5 percent down payment, interest rate of 4 percent, $720 homeowners insurance premium,, $2,300 in yearly property taxes and $125 HOA fees, would have a breakdown like this:
- Principal & Interest: $816
- Property Taxes: $192
- Homeowners Insurance: $60
- Private Mortgage Insurance: $114
- Homeowners Association Fee $125
- Total Monthly Payment: $1,307
Keep in mind that mortgage payments will include different items for different home types and financing options. For example, a monthly mortgage payment for a condo or townhome may include some form of association fee. In terms of insurance, a borrower who puts down 20 percent or more of their home’s purchase price isn’t typically required to pay monthly private mortgage insurance.
For a better idea on what a mortgage payment for a specific home or home price might look like, use one of our mortgage calculators or consult with one of our Loan Officers.
If you are looking for more homebuying information, our Mortgage 101 Handbook is a great resource for first-time and repeat homebuyers.