PITI Calculator

Understanding PITI Payments

When purchasing a home, your total monthly housing cost is rarely just the principal and interest on your loan. Mortgage lenders evaluate your housing budget using PITI, an acronym for Principal, Interest, Taxes, and Insurance.

Components of PITI

• Principal (P): The portion of your payment that pays down the outstanding balance of your mortgage loan.
• Interest (I): The fee charged by the lender for borrowing the money, calculated based on your interest rate.
• Taxes (T): Local property taxes assessed by county or municipal governments, usually collected monthly by your mortgage servicer into an escrow account.
• Insurance (I): Homeowners hazard insurance required by lenders to protect the property against fire, storms, and structural damage.

How PITI is Calculated

The principal and interest portion is calculated using the standard amortization formula:

$$M = P \cdot \frac{r(1+r)^n}{(1+r)^n - 1}$$

Where $P$ is loan principal, $r$ is the monthly interest rate, and $n$ is total months. Monthly property tax ($T$) and homeowners insurance ($I$) are calculated by dividing annual figures by 12.