Understanding mortgages
PITI, LTV, and the rest of the alphabet.
A mortgage is a loan with a house attached. The loan part is straightforward; everything else is the part that surprises.
P, I, T, and I.
The acronym PITI describes the four parts of a monthly mortgage payment in the United States: Principal, Interest, Taxes (property tax), and Insurance (homeowners, and sometimes mortgage insurance). The lender often collects taxes and insurance as part of the monthly payment and pays them on your behalf via an escrow account.
monthly = P + I + (T ÷ 12) + (Insurance ÷ 12)
Loan-to-value (LTV).
LTV is the loan amount divided by the property's value, as a percentage. An 80% LTV means you're borrowing 80% of the home's price and putting down the other 20%. Most lenders want LTV at or below 80% to skip private mortgage insurance (PMI); above that, you'll pay PMI until you build enough equity to drop it.
Fixed vs adjustable.
A fixed-rate mortgage locks in the interest rate for the full term. An adjustable-rate mortgage (ARM) starts at a lower fixed rate, typically for 5, 7 or 10 years, then floats with a benchmark. ARMs can save money if rates fall or if you'll move before the reset; they can hurt if rates rise. The 30-year fixed is the safe default.
The 28/36 rule.
A long-standing rule of thumb: spend no more than 28% of gross monthly income on housing (PITI), and no more than 36% on all debt combined. Lenders use stricter versions of these ratios when underwriting; the 28/36 numbers are the conservative target for personal sanity, not the regulatory ceiling.
Closing costs and the real outlay.
The down payment isn't all the cash you'll need. Closing costs — appraisal, title insurance, lender fees, attorney — typically run 2–5% of the loan amount, due at signing. The mortgage calculator above shows the recurring monthly number; budget separately for the lump sum at closing.