Morsimo
Guides
Key takeaways
- PITI stands for principal, interest, taxes and insurance. PMI and HOA dues come on top when they apply.
- On a $400,000 home with 20% down at 6.5%, principal and interest is $2,022.62, but the real payment is about $2,539, roughly 26% higher.
- With only 5% down on the same house, the payment rises to about $3,109 because the loan is larger and PMI applies.
- Property tax and insurance vary by county and by house, so replace any default with your own figures.
The parts of a mortgage payment
Principal
The part that reduces what you owe. Early in the loan it is small; see how amortization works.
Interest
The lender’s charge for lending you the money, calculated monthly on the remaining balance. Principal and interest together are fixed on a fixed-rate loan.
Property taxes
Charged by your county, city and school district, usually as a percentage of the assessed value. Many lenders collect one-twelfth each month into an escrow account and pay the bill for you. In many areas the assessment resets toward the purchase price after a sale, so the seller’s bill can understate yours.
Homeowners insurance
Required by lenders. It is also collected monthly into escrow in most cases. Cost depends on location, rebuilding cost, claims history and the deductible.
Mortgage insurance (PMI or MIP)
Added when a conventional loan has less than 20% down (PMI) or on FHA loans (MIP). See how PMI works.
HOA dues
If the home belongs to a homeowners association, dues are a separate bill. Lenders count them when they judge what you can afford, even though they do not go through escrow.
Worked example: $400,000 home
Assume a 30-year loan at 6.5%, property tax of 1.1% of the price a year, and $1,800 a year for insurance. These tax and insurance values are placeholders; use your own.
| Item | 20% down ($80,000) | 5% down ($20,000) |
|---|---|---|
| Loan amount | $320,000 | $380,000 |
| Principal & interest | $2,022.62 | $2,401.86 |
| Property tax ($4,400 / yr) | $366.67 | $366.67 |
| Insurance ($1,800 / yr) | $150.00 | $150.00 |
| PMI (0.6% of loan / yr) | $0 | $190.00 |
| Monthly total | $2,539.29 | $3,108.53 |
The smaller down payment adds $569 a month, and most of the gap is not just the larger loan: $190 of it is PMI that does not reduce your balance.
What is not in the monthly payment
Closing costs, moving costs, repairs, utilities and any special assessments. A common planning habit is to set aside about 1% of the home’s value each year for maintenance.
Why your lender’s quote may differ
The rate you are offered depends on your credit and the loan type, taxes depend on the exact address, and insurance depends on the specific house. Use the Loan Estimate your lender gives you as the final number.