An Acronym for Mortgage Payment : PITI

In many situations when you are dealing with Mortgage Loan or some related articles, you will come across the term PITI. Though the pronunciation is similar to the word 'pity', obviously the actual meaning is far too different. PITI is an acronym used by the lender for the periodic, typically monthly, mortgage payment.The abbreviation stands for the four components: Principal, Interest, Taxes and Insurance. Let me give you the basic idea of PITI.

Principal:

Mortgage principal is referred to as the original balance of your loan. As the monthly payments are made you are gradually reducing the outstanding amount together with the interest due for that month. You will also notice that in the early years the principal component is very less as compared to the later stage of the mortgage period.

Interest:

This is a percentage of the principal amount that is charged by the lender from you to give the loan to purchase the property. There are two types of interest rates: Fixed and Adjustable. In the first case, the interest rate does not alter during the term, whereas for the latter, the rate changes at regular interval of time.

Taxes:

The third component represents the taxes associated with mortgage loan. It can be a considerable portion of your overall mortgage loan, and the rate changes for different places. Hence it is advisable to check out the local tax rate before investing.

Insurance:

Homeowner's insurance provides protection to your property from unforeseen calamities or damages.This is generally collected by the lender to pay your insurance company.

You can watch this video to further clear your concept of PTTI.