When it comes to buying a home, it's important to consider all four aspects of a mortgage payment: principal, interest, taxes, and insurance (PITI). Knowing the components of a monthly mortgage payment can help you determine how much you can afford to pay for a house. The mortgage repayment program provides a detailed view of what part of each mortgage payment is dedicated to each component of the PITI. As noted above, first-year mortgage payments consist primarily of interest payments, while subsequent payments consist primarily of principal.
Principal is the amount of money you borrow or the amount of your loan. The main part of your monthly mortgage payment is the amount applied to the loan that pays the outstanding balance of your loan. Interest is the cost of borrowing money. The two factors that determine the amount of interest you pay are your interest rate and the amount of your loan.
Taxes are usually based on the assessed value of your home and are paid to local governments. Insurance is usually required by lenders and covers any damage to your home caused by fire, storms, or other disasters. When calculating how much you can pay for a house, it's important to consider all four components of a monthly mortgage payment: principal, interest, taxes, and insurance (PITI). Knowing these components can help you determine how much you can afford to pay for a house.