Mortgage Payment Breakdown

A

The correct answer is A. PITI.

PITI is an acronym that stands for "Principal, Interest, Taxes, and Insurance." It refers to a mortgage payment that includes these four components. The principal and interest components make up the basic payment amount that is due each month, while the taxes and insurance components are typically collected in an escrow account and paid by the lender on the borrower's behalf.

Let's break down each component of PITI:

• Principal: This refers to the portion of the mortgage payment that goes toward paying down the actual amount of the loan (i.e., the amount borrowed).

• Interest: This refers to the portion of the mortgage payment that goes toward paying the interest on the loan. The interest rate is typically expressed as an annual percentage rate (APR) and is based on the borrower's creditworthiness and the prevailing market rates.

• Taxes: This refers to property taxes assessed by the local government where the property is located. The amount of property taxes is based on the assessed value of the property and can vary from year to year.

• Insurance: This refers to homeowner's insurance, which is a type of insurance that provides coverage for damage to the property and liability protection for the homeowner. The amount of insurance coverage required is typically based on the value of the property and the lender's requirements.

In summary, PITI is a mortgage payment that includes the principal, interest, taxes, and insurance components. By including all of these expenses in the monthly mortgage payment, the lender ensures that the borrower can afford to make all of the necessary payments and avoids the risk of default due to unpaid taxes or insurance.