You’ve probably heard the term mortgage payment thrown around in every homebuying conversation. But what exactly makes up that monthly amount? Is it just paying down the house… or are there hidden costs baked in?

If you’re like most buyers, seeing the full breakdown of a mortgage payment helps you understand where your money goes—and how to plan your budget with confidence. Let’s break down each part of your mortgage payment, what it covers, and why understanding PITI (Principal, Interest, Taxes, and Insurance) is so important for first-time buyers, self-employed borrowers, and anyone getting ready to own a home.

The Four Parts of a Mortgage Payment: PITI

| P | Principal – The amount that goes toward paying down your actual loan balance.
| I | Interest – The lender’s charge for borrowing money, based on your interest rate.
| T | Taxes – Property taxes paid to your local government (usually collected monthly in escrow).
| I | Insurance – Homeowners insurance, and sometimes mortgage insurance, to protect you and the lender.

Let’s Break It Down Further

1. Principal

The principal is the portion of your payment that directly reduces your outstanding loan balance.
In the early years of your mortgage, most of your payment goes toward interest, but as time goes on, more shifts toward principal, building your equity.

2. Interest

Interest is what the lender charges you for borrowing the money to buy your home.
Your interest rate depends on factors like:

• Your credit score
• Loan type (Conventional, FHA, VA, etc.)
• Market conditions
• Down payment amount

Pro Tip: Even a small difference in your interest rate can significantly affect your monthly payment and the total cost of your loan over time.

3. Taxes (Property Taxes)

Property taxes fund local services like schools, roads, and emergency services.
In most cases, your lender collects 1/12th of your annual property taxes each month and holds the funds in an escrow account, paying the tax bill on your behalf when it’s due.

Keep in mind: Property taxes can change over time based on local assessments or voter-approved measures.

4. Insurance

There are typically two types of insurance that may be included in your mortgage payment:

• Homeowners Insurance: Protects your home and belongings from damage, theft, or disasters. Required by lenders.
• Mortgage Insurance (PMI or MIP): May be required if you put down less than 20% (varies by loan type). This protects the lender, not you, in case of default.

Good to know: If you have a VA loan, there’s no monthly mortgage insurance required.

Other Costs to Watch For (Not Always in Your Payment)

While PITI covers the core components, homeownership comes with additional expenses, including:

• HOA fees (if applicable)
• Utilities and maintenance
• Repairs or upgrades
• Supplemental property taxes (in some areas like LA)

It’s important to factor these into your overall homebuying budget—not just the quoted mortgage payment.

Why Understanding Your Mortgage Payment Matters

✅ Helps You Plan Your Budget Accurately
✅ Prepares You for Escrow Account Fluctuations
✅ Ensures You’re Not Caught Off Guard by Changing Taxes or Insurance
✅ Lets You Compare Loan Options With Confidence

When Shannon works with buyers, especially first-timers or self-employed clients, breaking down these details is part of the process. That way, there are no surprises—just a clear, realistic picture of what you’ll be paying each month.

Conclusion: Knowledge Is Power (And Budget Control)

Your mortgage payment is more than just the cost of the home, it’s a combination of key expenses designed to protect your investment and keep you on track.

Understanding exactly what goes into that payment helps you plan better, shop smarter, and avoid unpleasant surprises down the road. Shannon Christenot walks buyers through the real numbers, factoring in taxes, insurance, and all the moving parts so you know what to expect before you fall in love with a home.