What Your Monthly Mortgage Payment Really Covers
When people talk about their mortgage payment, most think it’s just the loan itself. But in reality, your true monthly housing cost is made up of several parts — and understanding them is key to knowing what you can really afford.
That’s where PITI comes in.
What is PITI?
PITI stands for Principal, Interest, Taxes, and Insurance. Together, these four components make up your full monthly mortgage payment — not just the amount you owe the bank.
Let’s break each one down.
Principal
Principal is the portion of your payment that actually reduces your loan balance and builds equity. Early in the life of a mortgage, this number is relatively small — but it grows over time.
Interest
Interest is the cost of borrowing money. On a fixed-rate loan, your combined principal and interest payment stays the same every month. However, early on, most of that payment goes toward interest.
That’s by design. Lenders know most homeowners move or refinance within about 5–8 years, so the majority of their profit is collected upfront. Over time, more of that same payment shifts toward principal.
Taxes
Property taxes are based on the county’s assessed value, not what you paid for the home. These are collected monthly and held in escrow.
If you’ve owned a home in Austin for a few years, you’ve probably noticed taxes increasing as assessed values have been playing catch-up.
Insurance
Homeowner’s insurance is collected monthly and held in escrow so the policy can be paid when it renews.
In Texas, insurance costs have increased 20% or more over the past couple of years due to weather events and higher rebuild costs.
A Real-World Example
For context, this assumes:
$400,000 home price (around the local median)
5% down payment
6% interest rate (roughly where rates have hovered recently)
Estimated Monthly Payment: ~$3,153
Interest: ~$1,900
Principal: ~$378
Property taxes: ~$750
Insurance: ~$125
When you look at this breakdown, you’re not just paying a mortgage — you’re paying interest, slowly building equity, and setting aside money every month for taxes and insurance.
Why This Matters
Affordability is about monthly payment, not just purchase price. Understanding PITI helps you make smarter, more confident real estate decisions — whether you’re buying now or planning ahead.
For more real estate insights like this, follow our page. And if you have questions about your current or future real estate goals — buying, selling, or planning your next move — message us directly. We’d love to chat.
