We discussed PITI Payments are. In short it is the total payments due on your mortgage. To recap:
PITI Payments is the components of a mortgage payment.
P – Principal is the money used to pay down the balance of the loan
I – Interest is the charge you pay to the lender for the privilege of borrowing the money
T – Taxes refer to the property taxes you pay as a homeowner
I – Insurance refers to both your property insurance and your private mortgage insurance and homeowners association fees if applicable.
What does my mortgage bill look like?
Your mortgage bill will include all of these numbers. You will be making one payment to your bank and they will make the Taxes and Insurance payments for you.
How does that work?
What happens is your bank opens an escrow account for you. Every time that you make your monthly payments, it goes into escrow. Lets make up some numbers.
Mortgage $400,000 @ 4% will equal monthly to ~ $1,900 ($1,909.66, based off of $576.33 in principle and $1,333.33 in interest)
Taxes $12,000 will equal monthly to $1,000
Insurance $1,200 will equal monthly to $100
When your bill arrives all of these charges will be consolidated into one charge of $3,000. When you pay the bill the bank will keep $1,900 of the money and put the other $1,100 into your escrow account. Then would then pay the property taxes quarterly. so after 3 months of collecting your $1,000 taxes they would then ship off $3,000 to your county to cover the property taxes on your home.
The same is true with the insurance on the house. The bank collects the insurance payments from you, and then pays the insurance company the monthly premiums. This setup is great in my opinion. instead of needing to worry about every payment on the house, the bank takes care of it for you.
So, when you hear your friend saying he has a $3,000 mortgage you know that only $575 is actually going to pay off his house and building equity. Pretty depressing if you think about it!
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PITI Payments is all the payments lumped together into one monthly obligation.