Understanding Your Mortgage Payment: PITI, APR and PMI

What actually makes up a monthly mortgage payment, plus the key terms — principal, interest, taxes, insurance, APR and PMI — every buyer should know.

A mortgage payment looks like one number, but it is really several costs bundled together. Knowing what each part is makes it far easier to compare offers and see where you can save.

Principal and interest

The core of the payment is principal (the amount you borrowed) and interest (the cost of borrowing it). These are spread evenly across the term using an amortization formula, so the payment stays the same each month. Early on, most of it is interest; over time, more goes to principal. The loan calculator shows this split for any amount, rate and term.

Taxes and insurance — the "PITI" payment

Most lenders also collect property tax and home insurance with the monthly payment and hold them in an escrow account, paying the bills on your behalf. Add these to principal and interest and you get PITI — Principal, Interest, Taxes and Insurance — the full figure the mortgage calculator works out.

APR vs interest rate

The interest rate is the cost of the loan itself. The APR rolls in certain fees and points, so it is usually a little higher and gives a fairer basis for comparing lenders. When you shop around, compare APRs, not just headline rates.

PMI and the down payment

If your down payment is small — commonly under 20% on a conventional loan — the lender may require private mortgage insurance (PMI), an extra monthly cost that protects the lender, not you. A larger down payment lowers the loan amount, the monthly payment and the total interest, and can remove PMI entirely.

Fixed vs variable

A fixed rate keeps the payment the same for the whole term, which makes budgeting simple. A variable (adjustable) rate can rise or fall with the market, so the payment may change over time. Which is better depends on how long you plan to stay and how much certainty you want.

The bottom line

Over 25–30 years a small difference in rate moves the total by a large amount, so it pays to compare the APR, put down as much as is comfortable, and understand every line of the payment before you commit. Run your numbers first with the mortgage calculator.