What components make up a PITI payment?

A PITI payment encompasses four key components: principal, interest, taxes, and insurance.

The principal portion is the amount of the loan that reduces the overall balance. The interest is the cost of borrowing that principal amount, typically expressed as an annual percentage rate. Property taxes are often included in the PITI calculation because they are typically a regular obligation for homeowners, and lenders consider them when assessing the borrower's ability to repay the loan. Insurance is also included, specifically homeowners' insurance, which protects the property against risks such as fire and theft.

Understanding these components is crucial for homeowners and potential buyers as they help in calculating the total monthly mortgage obligations. Thus, the answer accurately reflects the standard breakdown of monthly payments on a mortgage loan.