PITI Mortgage Guide: What Is a PITI Payment?

PITI stands for principal, interest, taxes, and insurance—four payments that make up a homeowner’s total monthly payment amount. To calculate a PITI payment for a home, you must determine the total amount of each individual component and add them together.

Knowing how to calculate a PITI payment can help you plan your budget for home buying. Comparing your monthly PITI payment to your gross monthly income can determine whether you will have a healthy debt-to-income ratio (DTI) during homeownership. Correctly calculating your DTI before buying a home prevents surprises regarding tax payments or insurance premiums that could throw off your budget.

The four components of PITI include the principal balance of your loan, interest payments, the amount of property taxes, and the cost of insurance:

1. 1. Principal: The principal of your mortgage loan is the amount of money remaining that needs to be paid off. Only a part of your monthly mortgage payment will go toward reducing the principal amount left in your loan. You can reduce the total principal loan amount by making loan payments directly to your principal, or paying more money upfront as a down payment.
2. 2. Interest: Interest rates are based mostly on credit score and credit history, though rates are also affected by the economy. Every loan borrower is given a different interest rate at the time of establishing their home loan, and the amount of interest paid each month is taken as a percentage of the total amount of principal left in the loan. You will pay interest to your mortgage lender on a monthly basis for the life of the loan.
3. 3. Taxes: Property taxes are paid monthly and include fees required by the city or county where your home is located. Property tax rates are determined by the local government and are based on the assessed value of your property, as determined by a local assessor. You will typically pay these real estate taxes to your mortgage lender through an escrow account, and the lender will then pay your annual property taxes on your behalf to the government each year.
4. 4. Insurance: A homeowner’s insurance policy protects against property damage, and proof of insurance may be required to take out a loan. Some lenders will also require insurance premiums like flood or earthquake insurance. Many mortgage lenders offer their own in-house insurance, or you can get private mortgage insurance (PMI) through a third-party insurance company. If a home buyer can’t pay the minimum 20 percent down payment, the borrower is often required to pay for mortgage insurance. The Federal Housing Administration (FHA) will also require a mortgage insurance premium if you can’t make the standard down payment, which might include upfront costs. Just like for home insurance, you can shop around for PMI through third parties.
   

There may be other costs outside of PITI to account for, such as closing costs, home repairs, or utility bills. You may also have homeowner’s association fees, which are typically monthly and can be found on most property listings or real estate websites.

You can find many mortgage calculators or PITI calculators online, which will do most of the math for you, but you can also calculate your monthly PITI payment yourself:

1. 1. Determine your mortgage principal. This is the total amount of money you will request to borrow from a mortgage lender when you make your home purchase. To calculate your principal, simply subtract your down payment from the purchase price. For example, if you plan to purchase a $500,000 home with a 20 percent down payment, you would subtract your down payment of $60,000 from $500,000 to get the total principal of $440,000.
2. 2. Calculate your monthly interest rate. To calculate your monthly interest rate, divide your annual interest rate by 12 for the months in the year. Let’s say you expect to receive an interest rate of 5 percent annually. You would then divide .05 by 12 to get your monthly interest payment of .0042, or .42 percent.
3. 3. Determine the number of payments for loan payoff. This is called the mortgage term, or the amortization of a loan. Conventional loan repayment terms are 15 or 30 years, but you can choose a shorter or longer term. Simply multiply your loan term number by 12 to determine the total amount of monthly payments you will make. For example, if you choose a term of 15 years, you would multiply 15 by 12 to determine that it will take 180 payments to pay off your loan.
4. 4. Use steps 1–3 to calculate your monthly mortgage payment. Use the following formula to calculate your monthly mortgage payment: P[i(1 + i)n]/[(1 + i)n - 1]. P is your mortgage principal from step 1, i is your monthly interest rate from step 2, and n is the number of months for loan payoff from step 3.
5. 5. Calculate your property taxes. You can typically find the amount of monthly property tax you will need to pay on the local government’s website or on the listing for the home.
6. 6. Determine your insurance payment. Shop around for different types of homeowners insurance, and ask your lender or insurance provider what types of insurance policies will be required for your home. If you’re putting down less than 20 percent on the house, you will also need to determine the cost of private mortgage insurance.
7. 7. Add together your monthly mortgage, tax, and insurance payments to get your PITI. Add the numbers you calculated from steps 4, 5, and 6 together. This is your total monthly PITI payment. While this is a close estimation, keep in mind that when you go to buy your home, this number could change based on interest rates or local property tax rates. This number also doesn’t include other costs, such as utilities, maintenance fees, or HOA fees.

All you need is a MasterClass Annual Membership and our exclusive video lessons from prolific entrepreneur Robert Reffkin, the founder and CEO of the real estate technology company Compass. With Robert’s help, you’ll learn all about the intricacies of buying a home, from securing a mortgage to hiring an agent to tips for putting your own place on the market.