PITI stands for Principal, Interest, Taxes, and Insurance. It is the full monthly obligation of homeownership — not just the principal and interest number a lender quotes when discussing your loan. Many buyers are quoted a monthly payment that reflects only principal and interest, then are surprised when the actual mortgage bill is $400 to $600 higher.

In Arizona, property taxes are notably low by national standards — the effective rate in Maricopa County runs approximately 0.6% of assessed value annually. On a $450,000 home, that is roughly $2,700 per year or $225 per month. Homeowners insurance in Arizona averages $2,344 annually (2026 data from Insurance.com) — approximately $195 per month. If the property has an HOA, those dues are added on top of PITI but are not technically part of the mortgage payment itself.

Amortization is the process of paying off a loan through equal scheduled payments over its term. The math is structured so that each payment covers the interest owed on the current outstanding balance first, with the remainder reducing principal. Because the balance is highest at the beginning, interest consumes most of each early payment. As the principal decreases, so does the interest component — meaning later payments apply more money to principal.

On a 30-year loan, approximately 83% of the first year’s payments go to interest, not principal equity. By year 10, that split is closer to 72%/28%. The equity acceleration really begins in years 20 through 30. This is why refinancing early in a mortgage resets the clock and temporarily returns you to the interest-heavy phase of amortization — a cost that is often underestimated when evaluating a refinance.

The interest rate is the base percentage used to calculate your monthly principal and interest payment. The APR (Annual Percentage Rate) is the true annualized cost of the loan — the interest rate plus origination fees, discount points, mortgage broker compensation, and other lender-controlled charges, expressed as a percentage. The APR is always higher than the interest rate (unless there are no fees at all, which is rare).

Federal law requires lenders to disclose the APR on every Loan Estimate. It is the standardized comparison number that allows apples-to-apples evaluation across lenders. A lender offering a 6.14% rate with heavy origination fees may have an APR of 6.44%, while a lender offering the same 6.14% rate with minimal fees may have an APR of 6.22%. The second lender is cheaper even though the stated rate is identical.

LTV is your loan amount divided by the property’s appraised value, expressed as a percentage. It measures how much of the home’s value you are financing versus how much you own outright. A lower LTV signals lower risk to the lender — more of the home’s value is your equity, meaning the lender has a larger buffer before a default produces a loss.

LTV directly affects three things: your interest rate (lower LTV often means better pricing in conventional loan pricing grids), whether PMI is required (conventional lenders require PMI when LTV exceeds 80%), and your refinancing options. Most conventional pricing adjustments (called Loan-Level Price Adjustments, or LLPAs) start at LTV above 60%, with meaningful cost increases above 80% and 95%.

PMI (Private Mortgage Insurance) is insurance required on conventional loans when the down payment is less than 20% of the purchase price — when LTV exceeds 80%. It protects the lender, not the borrower, against default losses. The borrower pays for it. PMI cost varies based on LTV, credit score, and loan type. At 95% LTV with a 700 credit score, PMI typically runs 0.875% of the loan amount annually. On a $427,500 loan, that is approximately $3,740 per year or $312 per month added to your payment.

Under the Homeowners Protection Act, lenders must automatically cancel PMI when the loan balance reaches 78% of the original purchase price based on the scheduled amortization. But you can request cancellation earlier — when LTV reaches 80% based on either payments or a new appraisal showing appreciation. In the current Phoenix market where values have risen meaningfully, buyers who purchased in 2022 or 2023 may already be at 80% LTV and eligible to request PMI removal without waiting for the scheduled cancellation date. FHA loans use MIP (Mortgage Insurance Premium) instead of PMI — the rules and removal conditions differ significantly.

DTI (Debt-to-Income ratio) is the percentage of your gross monthly income consumed by monthly debt payments. Lenders calculate two versions. Front-end DTI is the housing payment (PITI plus HOA) divided by gross monthly income — most programs cap this at 28% to 31%. Back-end DTI adds all other monthly debt obligations (car payments, student loans, minimum credit card payments, personal loans) to the housing payment, then divides by gross monthly income — most conventional programs cap this at 43% to 50%, FHA allows up to 57% in some cases.

Of the two, back-end DTI is almost always the binding constraint. A buyer with a $150,000 gross annual income ($12,500/month) and $1,200 in monthly non-housing debt can support a back-end DTI of 43% ($5,375/month maximum total debt) — meaning the maximum housing payment is $4,175/month. At 6.14% on a 30-year loan, $4,175/month P&I supports approximately a $600,000 loan before taxes and insurance. Add those in and the purchase price ceiling is lower than buyers often expect when they first run the math.

Arizona uses the word escrow in two distinct contexts that confuse buyers. Transaction escrow is the process managed by the title company that holds your earnest money, purchase funds, and documents from contract execution through recording. When your agent says “we opened escrow,” they mean a title company is now acting as a neutral third party for the transaction. Mortgage escrow (also called an impound account) is the sub-account within your mortgage that your lender uses to collect and pay property taxes and homeowners insurance on your behalf.

Every month, your mortgage payment includes a portion routed into the escrow account. When Maricopa County property taxes come due — in two installments, typically due in October and March — your lender pays the county directly from the account. The same process applies to your homeowners insurance premium. Lenders typically require a 2-to-3-month cushion in the escrow account, which is why you are asked to prepay taxes and insurance at closing. Arizona buyers often see $3,000 to $5,000 in escrow prepaids on the cash-to-close figure — this is not a fee, it is your money sitting in an account you own.

A rate lock is a lender’s commitment to honor a specific interest rate for a defined period regardless of market movement. Rate locks are not available until a purchase contract is executed — they require a specific property and loan amount. Standard lock periods are 30, 45, and 60 days. Longer locks cost more because the lender is absorbing more rate risk. The additional cost is typically expressed as a higher rate (e.g., 0.125% to 0.25% higher for a 60-day vs. 30-day lock) or as additional points at closing.

If the lock expires before closing, you face a lock extension fee — typically 0.125% to 0.375% of the loan amount per 15-day extension. On a $427,500 loan, a 15-day extension can cost $533 to $1,603. West Valley buyers dealing with HOA documentation delays or new construction timelines should budget for a 60-day lock from the start rather than accepting a 30-day lock and then needing an extension.

One discount point equals 1% of the loan amount paid upfront at closing in exchange for a lower interest rate. The rate reduction per point varies by lender and market conditions but typically runs approximately 0.25% per point. Paying points makes sense only if you expect to hold the loan long enough to recoup the upfront cost through monthly savings — the break-even calculation is straightforward: upfront cost divided by monthly savings equals break-even in months.

Discount points paid on a primary residence purchase are generally deductible in the year paid under IRS rules, provided the payment was an established practice (it is in Phoenix), the points are clearly itemized on the Closing Disclosure, and the funds came from the buyer’s own resources. For a buyer in the 24% federal tax bracket, the deduction can reduce the effective cost of each point by nearly a quarter. Check with a tax professional regarding your specific situation.

A conforming loan is a mortgage that meets the purchase guidelines of Fannie Mae and Freddie Mac — the government-sponsored entities that buy mortgages from lenders and sell them to investors. The 2026 conforming loan limit in all 15 Arizona counties is $832,750 for a single-family home. Conforming loans carry lower interest rates and more flexible underwriting because there is a deep, liquid secondary market for them.

A jumbo loan is any mortgage exceeding the conforming limit. Jumbo loans are held by the originating lender or sold to private investors — they carry higher rates, stricter underwriting (typically 720+ credit score, 10% to 20% down, lower maximum DTI), and fewer competitive options. For most West Valley buyers purchasing in the $400,000 to $700,000 range, the conforming limit is not a constraint. Buyers targeting higher-priced properties in north Peoria, Scottsdale-adjacent communities, or larger Buckeye ranch properties should be aware of where the jumbo threshold begins and structure their financing accordingly.