Mortgage Language: What Does the Acronym PITI Stand for?
Dealing with the buying or selling of real estate, there are many terms that come up. Unfortunately, there are many of these terms and it's not reasonable for the average seller or buyer to learn them all. That might not be the only reason you should be working with a Realtor, but it's one of those little things that go into the equation. There are some terms that you should be familiar with whether you have a Realtor helping you or not, and PITI is one of them. You wil lsee it associated with your loan docs and mortgage paperwork. Following is an explanation of the term and the meaning of each of its letters.
P Is for Principal
The "principal" is the total base amount of money that you are borrowing to buy the home. This figure differs from one scenario to the next even at the same home price depending on how much money you put down on the home and how much money you actually borrow. The principal is generally the biggest portion of the PITI figure.
I Is for Interest
Whenever you borrow money or pay on credit, you have to pay an interest charge. This is what the lender receives in order to loan you what you need. It is usually calculated as a percentage and appears as an amount on the PITI breakdown. Depending on the deal you have, the interest rate can stay fixed for the term of the loan or it can be variable, meaning it will be adjustable based on certain standard rates or factors.
T Is for Taxes
Taxation is one of the two eternal certainties of life. Taxes involved with home ownership typically go to governments at the local level to pay for public services. When you purchase a home, the associated tax dollars help local schools, child care centers, hospitals and other facilities serve the residents. The tax amounts are typically included with the monthly mortgage payment prorated. The lender pays the tax on your behalf to the local government.
The Other I Is for Insurance
It would be a serious error to have a home without having enough insurance. Your home is your biggest investment and a homeowners insurance policy is vital for your financial well-being. There are various policies from which you can select what is right for you, which is more than we can cover here. The choices available to you will also vary depending on how much money you put down on the property. If you make a down payment of less than 20% percent, lenders require that you buy a certain policy that covers them so they get their money back if something happens to your home or if you the home is lost in foreclosure. Similar to the way it is with taxes, these payments are generally added into the total mortgage payment.
Content provided by your Boulder Real Estate specialists of Colorado, Automated Homefinder.
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Linda Zimmerman, GRI, e-PRO, SRES |
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