PITI Calculator - PITI

Calculating real expenses for a mortgage borrower should include calculating PITI. This acronym stands for principle, interest, taxes and insurance. All of these components combine to create the full amount of a monthly mortgage payment. Since these expenses are essentially inseparable, it is important that they are considered when arriving at an accurate figure. Total principal, interest, property taxes and insurance costs equal the total PITI. Dividing by the number of months results in a payment amount.

Principal is the actual amount of the loan. Payments to the principal reduce the outstanding balance and repay the loan, reducing the amount the borrower owes over time. Typically the amount of a payment that is applied to principal is quite small initially and becomes a larger portion of the payment value as time goes on. Interest is the payment made for the privilege of borrowing the money to make the purchase. The amount is based on a percentage of the loan value. In the beginning, the majority of the mortgage payment is usually applied to interest, and as time goes by the interest diminishes as the principal is attributed a larger portion of the payment.

Taxes are exactly what one would expect; mandatory payments to the local, state, and federal government placed on property owners to support the community schools, roads, and government activities. The tax rate may vary greatly from place to place. Insurance can consist of solely homeowner’s policies, which cover the building in case of fire or other damage, or can include flood and other insurance deemed applicable. Private mortgage insurance (PMI) is sometimes also part of this expense if less than 20% is paid down, in order to protect the lender from default.