Mortgage Payment Checklist: What to Calculate Before Buying a Home
A comprehensive guide to home loan budgeting. Calculate PITI (Principal, Interest, Taxes, Insurance), down payments, and total interest.
Buying real estate is often the single largest financial commitment of a lifetime. A property's listing price is only one part of housing expenditure. True home affordability requires accounting for PITI (Principal, Interest, Property Taxes, and Homeowner Insurance) alongside HOA fees and maintenance reserves.
1. Decoding PITI (Principal, Interest, Taxes & Insurance)
A monthly mortgage statement is rarely just repayment of borrowed money. It consists of four distinct pillars (PITI):
• Principal: Direct repayment of home purchase loan balance.
• Interest: Lender compensation based on agreed APR.
• Property Taxes: Municipal or county real estate taxes escrowed monthly.
• Homeowners Insurance: Hazard and structural property protection coverage.
2. Down Payments & Private Mortgage Insurance (PMI)
Putting down less than 20% of the purchase price typically requires buyers to pay Private Mortgage Insurance (PMI). PMI protects the lender in case of default and usually adds 0.5% to 1.5% of the total loan amount annually to your monthly payment.
Reaching 20% home equity allows homeowners to request PMI cancellation, instantly reducing monthly housing expenses.
3. 15-Year vs. 30-Year Fixed Mortgages
A 30-year fixed mortgage offers lower monthly payments, providing budget flexibility. However, a 15-year fixed mortgage carries lower interest rates and saves hundreds of thousands of dollars over the life of the loan.
For example, a $400,000 loan at 6.5% interest on a 30-year term incurs $510,000 in total interest. The same loan on a 15-year term at 5.75% incurs only $200,000 in total interest—a savings of $310,000.
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Open Mortgage Calculator →Frequently Asked Questions
What does PITI stand for in mortgage budgeting?▼
PITI stands for Principal, Interest, Property Taxes, and Homeowners Insurance.
How can I remove Private Mortgage Insurance (PMI)?▼
PMI can be canceled once your principal loan balance drops to 80% of the original home purchase value or current appraised value.
What percentage of income should go toward housing?▼
Financial planners recommend the 28/36 rule: spend no more than 28% of gross monthly income on housing costs (PITI) and 36% on total debt.