### What does the acronym PITI stand for in mortgage terms? - [x] Principal, Interest, Taxes, Insurance - [ ] Payment, Income, Taxes, Insurance - [ ] Principal, Interest, Tariffs, Insurance - [ ] Payment, Interest, Taxes, Investment > **Explanation:** PITI stands for Principal, Interest, Taxes, and Insurance. These are the four components a lender will calculate to estimate a borrower’s monthly mortgage-related expenses. ### Which component of PITI represents the amount borrowed from the lender? - [x] Principal - [ ] Interest - [ ] Taxes - [ ] Insurance > **Explanation:** The principal is the amount of the loan that the borrower must repay. It represents the borrowed amount, excluding interest and other charges. ### What is the purpose of the interest component in a PITI payment? - [ ] To cover property taxes - [ ] To pay for homeowner's insurance - [x] To provide profit for the lender - [ ] To pay down the amount of the loan > **Explanation:** Interest is the cost of borrowing the principal amount of the loan. It represents the profit the lender earns from providing the loan. ### Which two components of PITI might be placed into an escrow account? - [ ] Principal and Interest - [ ] Principal and Taxes - [x] Taxes and Insurance - [ ] Interest and Insurance > **Explanation:** Taxes and insurance are often held in an escrow account by the lender. The lender collects a portion of these amounts monthly and uses the funds to pay them when due. ### What happens to the principal and interest components over the life of a loan? - [ ] Both remain the same - [ ] Both increase - [ ] Both decrease - [ ] **Principal decreases, interest varies > > **Explanation:** The principal portion of the payment reduces the loan balance over time, while the interest portion will vary but generally decreases as the loan balance decreases. ### How often can the insurance and taxes components of PITI amounts adjust? - [ ] Monthly - [x] Annually - [ ] Never - [ ] Quarterly > **Explanation:** Insurance and taxes components can vary from year to year based on reassessments and policy changes, leading the monthly PITI calculation to be adjusted annually. ### Why does a lender use PITI to estimate a borrower's monthly mortgage expense? - [ ] To calculate the annual interest rate - [ ] To avoid collecting taxes and insurance themselves - [x] To provide a realistic estimate of total monthly costs - [ ] To determine the gross income > **Explanation:** Lenders use PITI to give borrowers a complete picture of their potential monthly mortgage expenses, accounting for not just principal and interest, but also taxes and insurance. ### In a PITI payment, what does the insurance part typically cover? - [ ] Life insurance of the borrower - [ ] Mortgage insurance only - [x] Homeowner’s insurance and possibly mortgage insurance - [ ] Taxes and fees > **Explanation:** The insurance part of PITI typically includes homeowner’s insurance, which protects against property loss or damage, and sometimes includes mortgage insurance if required by the lender. ### What does an escrow account do in the context of a mortgage? - [ ] Pays back principal early - [x] Holds funds for taxes and insurance - [ ] Stores financial data for credit scoring - [ ] Collects rent from tenants in a rental property > **Explanation:** An escrow account is used to hold funds collected for property taxes and homeowner's insurance. These funds are typically collected monthly from the borrower by the lender and used to pay the relevant bills when they come due. ### What impact does the interest part of PITI have on the monthly mortgage payments over time? - [ ] Causes the payments to become increasing - [ ] Keeps the payments constant - [x] Causes the proportion of payment going to interest to decrease over time - [ ] Causes the principal payments to increase steadily > **Explanation:** As the loan balance decreases over time, the portion of the monthly payment allocated to interest decreases, while the portion allocated to repaying the principal increases.