Your monthly mortgage payment is also called your PITI payment which stands for the four components of your payment:
After you get a mortgage, you will pay back your principal and interest over years. In most cases, insurance and property taxes are also required and combined with your principal and interest payment. The taxes and insurance premiums are placed into an escrow account and paid by the lender.
Your loan amount is your principal balance. Virtually all payments include some amount of principal and your balance will decrease every time you pay your mortgage.
Most loans have a small principal component for the first few years, particularly long-term 30-year fixed mortgages.
The second component of a PITI payment is interest charged by the lender. Your interest rate is complex. The rate you are charged is determined by your down payment, credit score, market conditions, property type, location, and the type of loan you choose.
If you get a fixed-rate mortgage, your rate will stay the same for the life of the loan. An adjustable rate mortgage (ARM) has a rate that adjusts periodically.
Interest accounts for the biggest share of a PITI payment for the first few years.
Real estate purchases are subject to taxes by the state and city government. Mortgage lenders often collect annual taxes as a monthly addition to your payment, which is deposited into an escrow account and used to pay your property taxes each year.
Your property taxes depend on the tax rates in your area. This can vary wildly, and it may account for a small or large share of your PITI payment.
Finally, your lender will want to ensure your home is covered by insurance. This is important because, otherwise, you and the lender may suffer a total loss that is not recovered or you may choose to default on the loan if the home suffers serious damage. You may also need other forms of insurance including mortgage insurance or flood insurance. All forms of insurance may be included in your PITI payment.