What is typically included in a borrower’s monthly mortgage payment?

A borrower’s monthly mortgage payment typically includes principal, interest, taxes, and insurance, often referred to as PITI. This is essential because when a lender provides a mortgage, they want to ensure that the borrower is not only covering the loan repayment but also associated costs that protect both the property and the lender’s investment.

The principal is the portion of the payment that reduces the outstanding balance of the loan. Interest is the cost of borrowing money and is calculated based on the remaining loan balance. Property taxes are often included in the payment which the lender collects and holds in an escrow account, paying the local government on behalf of the borrower. Insurance, including homeowner’s insurance and possibly mortgage insurance, protects the borrower and lender from potential losses.

Including these elements in the monthly payment provides a clearer picture of the total financial commitment of the borrower and ensures that all obligations are met on time. This comprehensive structure is designed to make homeownership manageable and help prevent unexpected financial burdens from arising.