Mortgage Payment Breakdown: P&I vs Taxes vs Insurance vs HOA
The "Sticker Price" vs. The Real Price
You see a house listed for $400,000. You use a simple calculator and see a payment of $2,000. You think, "I can afford that!"
Then you buy the house, and your bill is $3,200. What happened?
You forgot the "TI" in PITI.
What is PITI?
PITI stands for the four main components of a monthly mortgage payment:
- Principal
- Interest
- Taxes
- Insurance
1. Principal
This is the money that actually pays down your debt. In the early years of a loan, this is the smallest portion of your check.
2. Interest
The fee you pay the bank for borrowing money. This is usually the largest portion initially.
3. Taxes (Property Tax)
Local governments charge property tax to fund schools, roads, and services.
- Cost: 0.5% to 2.5% of your home's value annually, depending on your state.
- Payment: Usually collected by your lender monthly, held in an Escrow Account, and paid to the county once or twice a year.
4. Insurance (Homeowners Insurance)
Protects your home from fire, theft, and disasters. Lenders require this.
- Cost: $800 - $3,000+ per year.
- Payment: Also typically paid via Escrow.
The Hidden Fifth Element: HOA
If you buy a condo or a home in a planned community, you likely have Homeowners Association (HOA) fees.
- Cost: $50 - $1,000+ per month.
- Payment: Usually paid directly to the HOA, not included in your mortgage check.
- Impact: Lenders count this debt against your income when qualifying you.
Example Breakdown
Let's look at a $400,000 home with 20% down ($320k loan) at 7%.
- Principal & Interest: ~$2,130
- Property Tax (1.2%): ~$400
- Home Insurance: ~$100
- Total To Lender: $2,630
If there is a $300 HOA fee:
- Total Housing Cost: $2,930
Summary
Never budget based on the loan payment alone. Always calculate the full PITI + HOA.
Our Mortgage Payment Calculator includes fields for Tax, Insurance, and HOA to give you the real number.