As you’re getting ready to buy a home, you may be wondering what your monthly mortgage bill will consist of.
Also, you may have heard the term “PITI payment” or “PITIA payment” which refer to the costs that go into your monthly mortgage bill.
Let’s break down what these terms mean, and what to expect on your first mortgage statement.
Key takeaways
- When will my first mortgage payment be due?
- What to expect on my first mortgage bill?
- What all costs go into my monthly mortgage bill?
- What does “PITI” or “PITIA” stand for?
- What do I need to know about the Principal, Interest, Taxes, Insurance, and Association Fees on my mortgage bill?
When will my first mortgage payment be due?
After closing on a home, you will have a 30 day time window, and then your next payment will be due on the first of the month AFTER that 30 day time window.
For example, if you close on your mortgage February 15th, your first mortgage payment will NOT be due on March 1st. It would be due April 1st.
What does PITIA mean? What does my monthly mortgage bill consist of?
Your monthly mortgage bill is comprised of 5 parts:
1) Principal
2) Interest
3) Taxes
4) Insurance
5) Association Fees
These 5 major components are referred to as your “PITIA payment.”
Principal
The Principal is the portion of your mortgage payment that goes toward paying off your home’s loan amount.
For instance, let’s say you buy a home with a purchase price of $300,000, and your down payment at closing was $10,000.
In that case you’d be getting a loan for $290,000, and your monthly principal payment will go toward paying off that $290,000 balance.
Interest
The Interest is the additional amount of money you pay each month in exchange for receiving the home loan. The higher the interest rate, the higher your monthly interest payment.
When you first buy a home, there are a lot of different factors that affect what your interest rate will be such as the current market rates, your credit score, location, home price, loan amount, down payment, loan term, type of mortgage, and more.
One of the most common reasons why homeowners choose to refinance down the road is to get a lower interest rate in the future and save on their mortgage.
Taxes
The taxes portion of your mortgage refers to real estate taxes, also known as property taxes.
The amount of property taxes you owe each year will vary depending on where you live. Also, as different tax laws are passed by the government, those fees are subject to change.
Your property taxes are calculated by the government once or twice per year, but you can pay these taxes off as part of your monthly payments, which is why they typically go into an escrow account.
An escrow account is kind of like a vault that reduces risks. It holds onto your funds, so that when the government is ready to come collect your tax bill, they can just “open the vault” and the money is there without you having to worry about it.
The benefit to an escrow account is that it reduces your risk of accidentally defaulting on your taxes.
Insurance
The insurance portion of your mortgage payment refers to a few different types of insurance.
There’s mortgage insurance (MI), which is a type of insurance you might pay depending on the type of home loan you receive, and depending on how much down payment you bring to closing.
But in addition to mortgage insurance, you also have homeowner’s insurance, also known as property insurance.
Your homeowner’s insurance policy is going to include a lot of different coverage types, as there are a few different liabilities that you need to be covered for, in addition to potential hazards or disasters you’ll want to be protected from.
For example, one of the coverage types included in your homeowners insurance policy should be hazard insurance.
And the types of hazard insurance you need can vary depending on your location. For instance, if you’re in an area that’s prone to earthquakes, then you will probably be required to get a hazard insurance policy that specifically covers earthquake damage.
Association Fees
Also known as HOA Fees, you may have to pay association fees if you live in a homeowners association, condominium, co-op, or gated community.
These fees help to cover the cost of amenities and general upkeep such as landscaping, pool cleaning, common area repairs, and certain shared utilities like sewer fees and garbage collection.
If you do have association fees, those will go directly to the homeowners association and likely won’t be listed on your mortgage statement.
Summary
- After closing on your home, you’ll have a 30 day time window, and then your first mortgage payment will be due on the first of the month AFTER that 30 day time window has passed.
- Your monthly mortgage bill consists of a “PITI” or “PITIA” payment.
- PITIA stands for Principal, Interest, Taxes, Insurance, and Association Fees.
