Mortgage Resource Center

Empowerment through Education
Jun 23, 2015
Homer Simpson's Guide To Mortgage Payments

(image source: The Simpsons/FOX. All Rights Reserved.)

‘To start, press any key’ – Where’s the “ANY” key?!” – Homer Simpson

If you’re beginning the home buying process, you might feel a tad overwhelmed.

Mortgage payments puzzle you.  You don’t know what home loan option is best for you (are there any first time home buyer programs?).  And you’re wondering if you can handle the payments.  You’ve got a plethora of questions.

That’s where we come in.  To quench your thirst for understanding what you are paying for, we’ve created Homer Simpson’s guide to mortgage payments – simple and deliciously easy to digest…like donuts.

What A “PITI”: A Mortgage Payment Breakdown

First things first: what’s in a mortgage payment?  (I dunno)  Luckily for you, it spells out an acronym = “PITI”:

  1. Principal
  2. Interest (Mortgage) Rate
  3. Taxes
  4. Insurance

Now that you know what makes up a mortgage payment, here’s what it actually means:

1. Principle

If you’re familiar with credit cards (hopefully not too familiar – good FICO scores lead to lower mortgage rates and saving you money over time), the same concept applies.  The principle is the actual amount you borrow for the home of your dreams.

2. Interest (Mortgage) Rate

You’ll watch the news and hear people talk about interest rates or watch a commercial about taking advantage of low mortgage rates (not now…but right now).

If you’re wondering whether they are the same thing (DING DING DING), your assumption is correct.

An interest rate is what a lender like Get A Rate charges for a home loan.

3. Taxes

Pretty much what it sounds like – these are the property taxes on the house you are buying.

And last but certainly not least:

4. Insurance

If you have car insurance or want health coverage for when you get sick, there’s also insurance for your home aptly called homeowners insurance.

It pretty much works like how car and health insurance: homeowners insurance is to protect the homeowner should anything happen to your beloved home.  So if any physical damages happen to the house, you are protected.

Some tidbits of information about insurance:

  • On Conventional Loans – Most of the time, taxes & insurance are in the mortgage payment.  However, you could pay it on your own in a separate payment to your insurer (usually annually).
  • On FHA Loans – Homeowners Insurance is always included in your mortgage payment.

  if you’ve heard the term “Private Mortgage Insurance” also known as PMI, it is completely separate from PITI.  PMI is to protect the lender when a homeowner defaults on payments.  If you are looking for a No PMI option, speak to a Home Loan Expert today.

And that, my home buying friends, is Homer Simpson’s guide to mortgage payments.  (Simple, right?!)

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