Kovats Real Estate School Practice Test 2025 – 400 Free Practice Questions to Pass the Exam

'PITI' refers to the components that make up a standard mortgage payment, which is crucial for borrowers to understand when securing financing for a home. The correct description of 'PITI' includes Principal, Interest, Taxes, and Insurance.

- The principal is the portion of the payment that pays down the original amount borrowed.

- Interest is the cost of borrowing the money, typically expressed as an annual percentage and calculated based on the remaining loan balance.

- Taxes generally refer to property taxes, which are assessed by local governments and collected periodically, usually monthly, as part of the mortgage payment.

- Insurance typically includes homeowners insurance that protects the property and its occupants and may also encompass private mortgage insurance (PMI) if the down payment is less than 20%.

Understanding PITI is essential for budgeting, as it gives prospective homeowners a clearer picture of their total monthly housing costs. Knowing all parts of the payment helps borrowers evaluate how much they can afford and plan their finances accordingly.