What does the acronym PITI stand for in real estate?

The acronym PITI stands for Principal, Interest, Taxes, and Insurance. These four components are essential in understanding monthly mortgage payments.

When you pay your mortgage, the payment is typically divided into these four parts. The principal refers to the amount of money borrowed that needs to be repaid. Interest is the cost of borrowing that principal, expressed as a percentage. Taxes are the property taxes incurred, which can be included in the monthly mortgage payment if the lender collects these taxes through an escrow account. Insurance usually refers to homeowners insurance, which protects the property and its owner against certain risks, such as damages due to fire or theft.

This breakdown is crucial for homeowners and real estate professionals alike to understand the total cost of homeownership, as these components can significantly affect monthly budget planning and overall affordability. Understanding PITI provides clarity on the financial obligations of a mortgage, which is fundamental for making informed decisions in real estate transactions.