PITI (Principal, Interest, Taxes, Insurance)

The term PITI is an acronym that comes from principal, interest, taxes, and insurance. A lender will calculate these costs to give a borrower a realistic estimate of their mortgage related expenses month to month. Every month, a borrower makes a payment to their mortgage lender. That amount combines principal, interest, taxes and insurance. The principal goes to paying down the amount of the loan. The interest is the profit the lender gets from their investment. The principal and interest will vary from month to month. Taxes and insurance are a contractual requirement on most mortgages. The lender collects a portion of the annual amounts each month and places them in escrow. When the taxes and insurance come due each year, the lender pays them out of the escrow account. The insurance and taxes may vary from year to year, so this amount adjusts annually.