Frequently Asked Questions
What is a PITI Calculator?
PITI stands for principal, interest, taxes and insurance. This represents the bulk sum of the monthly expenses of owning a home. A PITI Mortgage Calculator like ours makes it easy to find out how much that monthly payment will be.
How To Calculate PITI?
PITI is the sum total of your principal, interest, taxes and insurance. Each one is calculated interdependently (for the most part) and then summed together into a monthly payment using math and magic.
Principal is the amount of money you owe the bank. At the beginning of your mortgage, it is the total amount of your home loan. In order to finish paying off your loan, you have to complete paying all of your principal. However, because of the way mortgages are structured, you pay more principal at the end of a mortgage than at the beginning. Check out our extra payments calculator for a deeper look.
Interest is the cost of borrowing money over time. You pay more interest depending on how risky your loan is and, depending on the Federal Reserves policy at any given time. Since a mortgage is a collateralized loan (backed by your home), it is considered less risky than other forms of debt. Therefor mortgage rates are usually lower than credit card rates.
Interest is calculated in a mortgage by taking the your total ending balance, at the end of any given month, and multiplying your annual rate, divided by the number of months (12). So the more principal you have left, the more your monthly interest payment will be, and the less you are paying toward your principal.
Property taxes are a highly local phenomenon. They vary greatly between municipal governments. But they are always based on the value of your home, and they almost always use arcane and convoluted formula to calculate how much you owe. However, thanks to data, we can estimate how much you will effectively pay. Check out our property tax map to see the effective tax rate in your county.
Home Owner’s Insurance
Home owner’s insurance is probably the lowest cost on the list. It protects you from unexpected damages on your home, and is calculated by the value of your home, and the risk of a catastrophic accident.
What is a Monthly PITI Payment?
A Monthly PITI payment is the sum total of your principal, interest, taxes and insurance broken down by month. In short, it is the true monthly cost of owning a home.
How Do You Calculate a Monthly Payment?
When you calculate the monthly mortgage payment, you’re taking the amount borrowed, with the expected interest, and spreading it out over the loan term of the mortgage. Usually 15 – 30 years. Then dividing that amount by the total number of months you can expect to pay.
Then in order to complete the PITI calculation, you add the effective tax and insurance rate. Divide by 12, and tack them onto the monthly mortgage payment. You can use the formula above, or just check out our Ultimate PITI Calculator, where we do all the work for you.
What is a PITI Ratio?
The PITI Ratio is the total expense of owning a home, divided by your gross income, and expressed as a percentage. So if your annual PITI payment is $30,000, and you are making $100,000 a year, your PITI ratio is 30%. Experts recommend that your PITI ratio should be 28% of your gross annual income or less. This way you will have excess cash at the end of every month.