Your mortgage payment is four bills in one: principal, interest, property tax and home insurance. Here is what each costs and how to estimate the total before you buy.
The four parts: PITI
Lenders advertise principal and interest, but the money that leaves your account each month is PITI — principal, interest, tax and insurance. Property tax and insurance are usually collected monthly into an escrow account and paid on your behalf, which is why the real bill surprises first-time buyers.
Principal and interest
This is the loan itself, calculated with the amortisation formula from the amount borrowed, the rate and the term. On a 320,000 loan at 6.5% over 30 years, it is about 2,023 a month. Every payment splits between interest (which shrinks over time) and principal (which grows) — early years are mostly interest.
Property tax
Set by your local authority, usually 0.5% to 2% of the home's assessed value per year, divided into monthly escrow payments. On a 400,000 home at 1.2%, that is 400 a month — and it tends to rise with property values, so budget for growth.
Home insurance
Lenders require it. A typical policy runs 1,200 to 2,500 a year depending on location and coverage — roughly 100 to 200 a month into escrow. Quotes vary wildly, so shop three insurers before closing.
A worked example
400,000 home, 20% down, 6.5% rate, 30-year term, 4,800 yearly tax, 1,800 yearly insurance, no HOA: principal and interest 2,023, tax 400, insurance 150 — total about 2,573 a month. That is the number to test against your budget, not the 2,023 the lender advertises.
Run your own figures in the Mortgage Payment Calculator — it adds tax, insurance and HOA automatically.
The 28% rule
A classic guideline: keep total housing costs under 28% of gross monthly income. On a 9,000 monthly income, that caps housing at 2,520 — our example at 2,573 is just over, a signal to look slightly cheaper or put more down.
What changes after you buy
Principal and interest never move on a fixed-rate loan, but tax reassessments, insurance renewals and HOA increases all push the total up over the years. Review the escrow statement yearly and appeal an unfair tax assessment — it is one of the highest-return hours a homeowner can spend.
Frequently asked questions
What does PITI stand for?
Principal, interest, property tax and insurance — the four parts of a typical monthly mortgage payment. HOA dues sit on top where they apply.
How much is property tax per month?
Divide the yearly bill by 12. At 1.2% on a 400,000 home, that is 4,800 a year or 400 a month, collected through escrow.
Why is my mortgage payment higher than the loan payment?
Because tax and insurance are escrowed monthly on top of principal and interest. The lender's headline figure is only part of the bill.
Can my mortgage payment go up?
Yes — property tax, insurance and HOA can all rise. Only the principal-and-interest slice is fixed on a fixed-rate loan.