The four components of a monthly mortgage payment are principal, interest, taxes and insurance – also know as your PITI payment. Each month you will repay your mortgage lender a portion of your loan’s principal balance (the loan amount) and accrued interest, plus payments that will be put into an escrow account from which your lender will pay your annual property taxes and homeowner’s insurance policy premiums.
How to Calculate PITI Payments
On the surface, calculating PITI payments is simple:
- Principal Payment + Interest Payment + Tax Payment + Insurance Payment
However, calculating each of these factors can be slightly more complicated.
Principal and Interest
To determine an estimated monthly principal and interest payment on your own, you will need a scientific or financial calculator to work out your loan amount’s amortization over the loan term (probably 10, 15 or 30 years). You will also need to know your mortgage loan interest rate.
Tax Payment Estimate
You can obtain a record of tax payments on the property in question from your county’s property tax office. Depending on the county, some of these are available through a simple online search. Divide the total annual tax payment by 12 to find an estimate of your monthly tax payment.
Shop around for homeowner’s insurance policies before picking one. When doing so, you will be provided with a premium estimate. Divide this number by 12 to determine your monthly insurance payment.
Keep in mind that if your home is in a designated special flood hazard zone, you will also be required to take out a flood insurance policy. Your lender will provide you with official notification before loan closing, if this is the case.
Simple, One-Step Calculation with a PITI Payments Calculator
Rather than calculating the amortization on your own, search online for a PITI payments calculator. Reveal your monthly payment by entering these factors:
- Loan Amount (home purchase price minus down payment)
- Interest Rate
- Loan Term
- Tax Estimate
- Insurance Premiums
An online calculator allows you to tweak various factors in the equation to see how it affects your monthly PITI payments.
So, you can easily see how a 1/2-point savings in interest affects your payment or how quickly you can pay off your mortgage if you pay $50 more per month.
Adjustable-Rate Mortgages, Premiums and Taxes Fluctuate
If you are approved for an adjustable-rate mortgage, remember the interest rate on your loan will change based on a predetermined schedule. An adjusted interest rate will affect your monthly payment amount, increasing or decreasing it.
Taxes and insurance premiums also fluctuate annually, which will lead to an adjusted monthly escrow payment. Keep the potential for change in the back of your mind when deciding whether you can afford your proposed mortgage payment.