What must be included in the monthly PITI mortgage payment?

The monthly PITI mortgage payment is composed of four key components: principal, interest, taxes, and insurance. Each of these elements plays a crucial role in the overall mortgage payment structure.

Principal refers to the amount borrowed that is being paid down over time. Interest is the cost of borrowing that principal, usually expressed as an annual percentage rate. Taxes typically refer to property taxes that homeowners are required to pay, which are often collected by the mortgage lender and held in escrow. Hazard insurance, often referred to simply as insurance, protects the property against risks like fire, theft, and other hazards.

Including these four elements provides a comprehensive payment structure that ensures homeowners are not only servicing their debt but also maintaining financial responsibility in terms of property taxes and protecting their investment with insurance. This combination helps to create a complete financial profile for managing a mortgage effectively, which lenders expect from borrowers.

The other choices either exclude essential elements, such as not accounting for both taxes and hazard insurance together or leaving out critical components altogether. Thus, the inclusion of all four in the monthly payment is essential.