PITI stands for Principal, Interest, Taxes, and Insurance—the four components of a typical monthly mortgage payment:

• Principal: The portion that reduces your loan balance
• Interest: The cost of borrowing money
• Taxes: Property taxes assessed by your local government
• Insurance: Homeowners insurance to protect against property damage

Many lenders also include HOA fees and PMI (if applicable) in the total monthly payment calculation.

PMI (Private Mortgage Insurance) is required by lenders when your down payment is less than 20% of the home's purchase price. It protects the lender if you default on the loan.

To avoid PMI:

• Make a down payment of 20% or more
• Consider a piggyback loan (80-10-10 structure)
• Use lender-paid mortgage insurance (higher interest rate)
• Look for lender-specific programs that don't require PMI

Under the Homeowners Protection Act, PMI must automatically terminate when your loan balance reaches 78% of the original home value.

Extra payments directly reduce your principal balance, which has a compounding effect on interest savings:

• Interest Savings: Every dollar applied to principal reduces future interest calculations
• Loan Term Reduction: Extra payments can shave years off your mortgage
• Equity Building: You build home equity faster with additional payments

Example: On a $300,000 loan at 4% for 30 years, an extra $100/month would save ~$27,000 in interest and pay off the loan 4 years early.

Always specify that extra payments should be applied to principal reduction when sending them to your lender.

The choice depends on your financial goals and cash flow:

• 15-Year Mortgage: Higher monthly payments but significantly less interest paid over the life of the loan (typically 1/3 to 1/2 the interest of a 30-year loan)
• 30-Year Mortgage: Lower monthly payments providing more cash flow flexibility, but you pay more interest over time

Strategy: Some homeowners choose a 30-year mortgage but make extra payments when possible. This provides flexibility during tight financial months while still allowing accelerated payoff.

Consider your job stability, other financial goals, and risk tolerance when deciding.

Property taxes are typically calculated as a percentage of your home's assessed value (not purchase price). The assessment is done by your local county assessor.

Payment Methods:

• Escrow Account: Most lenders collect 1/12 of the annual tax bill with each mortgage payment, then pay the taxes on your behalf when due
• Direct Payment: You pay the tax authority directly, usually in semi-annual or annual installments

Property tax rates vary widely by location, from under 0.5% in some states to over 2% in others. Always research local rates before purchasing.