(1.) The four components of a monthly mortgage payment: Principal, Interest, Taxes, Insurance.

• Principal: the part of the monthly payment that reduces the remaining balance of the mortgage.
• Interest: the fee charged for borrowing money.
• Taxes & Insurance: the monthly cost of property taxes and homeowners insurance, whether these amounts are paid into an escrow account each month or not.

(2.) PITI is used by lenders in two ways:

• To compute the applicant's back end ratio and front end ratio for the purpose of judging their capacity to pay back the loan.
• To collect the monthly mortgage amount, including principal and interest, plus an amount that covers one twelfth (1/12th) of property tax and property insurance premium kept in escrow until due for payment.