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What’s Included in a Mortgage Payment?

When you make a mortgage payment, you’re not just paying off your home loan itself.

Your mortgage payment includes several other important costs that are part of owning a home. These other costs are best defined by the acronym “PITI.” It stands for principal, interest, taxes, and insurance.

The principal is the amount of money you borrowed for home, interest is the cost of borrowing that money, taxes represent your local property taxes, and insurance includes homeowners insurance and any other form of insurance that you may be required to carry. This can include flood or earthquake coverage.

If you have a fixed-rate loan, your principal and interest payments won’t change for the life of the loan. That may not be the case for the other two parts of PITI.

“Sometimes we can see that a mortgage payment may go up, and it's not necessarily because your payment or interest went up,” said Sergio Montalvo, sales trainer at New American Funding.

“It could be that (your) taxes went up,” Motalvo added. “And because of that, your mortgage payment would have to adjust so that we can collect enough taxes through the life of the loan to make sure that we're making that we're paying them on time and avoiding your becoming delinquent on taxes.”