Your mortgage payment is only part of what you owe each month
When you see a mortgage payment quoted at $1,200 a month, that number covers only the loan itself — the principal and interest. Your actual monthly payment to your lender is usually higher because it includes property taxes and homeowners insurance, and often mortgage insurance if you put down less than 20 percent. This combined payment is called PITI (principal, interest, taxes, and insurance), and it's the number you need to know before you commit to a house.
Lenders collect taxes and insurance through an escrow account. You pay the lender a monthly amount that covers your share of the annual tax bill and insurance premium. The lender holds this money and pays the bills on your behalf when they're due. This protects the lender — they know the property taxes and insurance won't go unpaid — and it simplifies your finances because you make one payment instead of three.
Key Takeaways
- Your full monthly payment includes principal, interest, property taxes, homeowners insurance, and often mortgage insurance — not just the loan amount.
- Property taxes vary widely by location and are based on your home's assessed value, not its purchase price.
- Homeowners insurance costs depend on the home's age, location, construction type, and your coverage limits.
- You can estimate your total payment by adding the loan payment to one-twelfth of your annual tax and insurance costs.
- Your lender will provide an exact estimate in the Loan Estimate form before you lock in a rate.
How property taxes are calculated and what they cover
Property taxes are set by your county or municipality and are based on the assessed value of your home, not what you paid for it. The assessor's office determines this value, usually by comparing your home to recent sales of similar properties in your area. Tax rates vary dramatically by location — a home worth $300,000 might carry a $3,000 annual tax bill in one county and a $6,000 bill in another 50 miles away.
Property taxes fund local schools, roads, fire departments, and other municipal services. They're reassessed periodically, sometimes annually and sometimes every few years depending on your state. After you buy, the assessed value may change, which means your tax bill can go up or down. Some states cap how much the assessment can increase in a single year, while others allow larger jumps. Your lender will estimate taxes based on the current rate and assessed value, but you should ask the county assessor's office what the actual bill is for the specific property you're buying.
Homeowners insurance and what affects the cost
Homeowners insurance protects the structure of your home and your belongings inside it. Your lender requires you to carry it as a condition of the mortgage. The cost depends on several factors: the home's age and construction type, its location (including flood risk and crime rates), the replacement cost to rebuild it, your chosen deductible, and your coverage limits.
A newer home with modern electrical and plumbing systems typically costs less to insure than an older home with outdated systems. A brick home in a low-crime area with a fire station nearby will be cheaper to insure than a wood-frame home in a remote area. If your home is in a flood zone, you'll need separate flood insurance, which is not included in a standard homeowners policy and is often more expensive than the homeowners policy itself. You can get quotes from multiple insurers before you buy to see what the actual cost will be for the specific property.
Mortgage insurance when you put down less than 20 percent
If your down payment is less than 20 percent of the purchase price, your lender will require private mortgage insurance (PMI). This protects the lender if you stop paying, and the cost is added to your monthly payment. PMI typically runs between 0.5 and 1.5 percent of the loan amount per year, divided into 12 monthly payments. On a $300,000 loan, that could be $125 to $375 per month.
PMI is not permanent. Once your loan balance drops to 80 percent of the home's original purchase price — through a combination of payments and home appreciation — you can request that PMI be removed. Some loans remove it automatically at that point; others require you to ask. If you're putting down less than 20 percent, factor PMI into your total payment estimate, and understand that it will eventually go away as you build equity.
How to estimate your total monthly payment
Start with the loan payment itself. If you're looking at a $300,000 loan at 7 percent interest over 30 years, an online mortgage calculator will show you the principal and interest payment — roughly $1,995 per month. Then add taxes and insurance.
For property taxes, contact the county assessor's office for the property you're interested in and ask for the current annual tax bill. Divide that by 12 to get the monthly amount. For homeowners insurance, get quotes from at least two insurers for the specific address. Divide the annual premium by 12. Add these two numbers to your principal and interest payment. If you're putting down less than 20 percent, add the estimated PMI as well. That total is your estimated PITI payment.
Here's a concrete example: principal and interest of $1,995, plus property taxes of $300 per month, plus homeowners insurance of $120 per month, plus PMI of $200 per month, equals $2,615 total. This is what you'll actually owe your lender each month.
The Loan Estimate form shows your exact payment before closing
Once you've made an offer on a home and the lender has processed your application, they're required by federal law to send you a Loan Estimate within three business days. This form breaks down your exact monthly payment, including principal, interest, taxes, insurance, and PMI. It also shows closing costs and other fees. This is the official number from your lender, not an estimate — though taxes and insurance can still shift slightly before closing if the assessed value or insurance quote changes.
Review the Loan Estimate carefully. If the property taxes or insurance amount seems wrong, contact your lender or the county assessor's office to verify. You have the right to shop for homeowners insurance and provide your own quote to the lender. The Loan Estimate is also your chance to lock in an interest rate if you haven't already, which locks in the principal and interest portion of your payment.
Why your payment can change after you close
Your PITI payment is not fixed for the life of the loan. Property taxes can increase when the county reassesses your home or raises the tax rate. Homeowners insurance premiums can go up if you file a claim, if your insurer raises rates across the board, or if you increase your coverage. If either of these increases, your lender adjusts your escrow payment upward to cover the higher bills.
Conversely, if your home's assessed value drops or your insurance company lowers your premium, your payment can decrease. Your lender reviews your escrow account annually and adjusts your payment accordingly. This is different from your principal and interest payment, which stays the same for the life of a fixed-rate mortgage — but it means your total monthly payment can fluctuate over time.
Frequently Asked Questions
What's the difference between my mortgage payment and my PITI payment?
Your mortgage payment is just principal and interest — the cost of borrowing the money. Your PITI payment includes that plus property taxes, homeowners insurance, and mortgage insurance if applicable. PITI is your actual total monthly obligation to the lender.
Can I pay property taxes and insurance separately instead of through escrow?
Most lenders require escrow for the life of the loan, especially if you put down less than 20 percent. Some lenders allow you to pay taxes and insurance yourself once you've built significant equity, but you have to request this and the lender has to agree. Escrow is simpler because the lender ensures bills are paid on time.
Does my down payment affect my property taxes?
No. Property taxes are based on the assessed value of the home, not on how much you paid for it or how much you put down. However, if you put down less than 20 percent, you'll pay PMI, which increases your total monthly payment.
What happens if my property taxes or insurance go up after I buy?
Your lender adjusts your escrow payment to cover the increase. You'll see this reflected in a higher monthly payment. The lender reviews escrow annually and notifies you of any changes. You don't have to do anything — the adjustment happens automatically.
How do I know if the property taxes quoted to me are accurate?
Contact the county assessor's office directly for the property address and ask for the current annual tax bill and assessed value. This is public information and they'll provide it free. Compare this to what your lender quoted on the Loan Estimate. If there's a big difference, ask your lender to explain or update the estimate.