What Is a PITI Payment? Understanding Principal, Interest, Taxes and Insurance

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When buying a home, you’ll probably be exposed to new real estate lingo, like the acronym “PITI.” This represents the four main components of your monthly mortgage payment: principal, interest, taxes and insurance. This guide covers what you’ll need to know about PITI, including why it matters and how to calculate it.

Key takeaways

Principal, interest, taxes and insurance (PITI) are the four main ingredients of a monthly mortgage payment.
Calculating your PITI can help you determine how much home you can afford.
Shopping around for homeowners insurance may help you lower your PITI payment.

What is PITI?

PITI stands for principal, interest, taxes and insurance. These four elements make up your monthly mortgage payment, and understanding PITI can help you estimate the full cost of homeownership.

Here’s a breakdown of each element:

Principal

The “P” in PITI stands for the amount you pay toward your principal each month. The principal is the total amount you borrow for a loan. For example, if you buy a home for $350,000 and make a 20% down payment, your principal balance is $280,000.

When you first take out a mortgage, very little of those early monthly payments goes toward repaying the principal amount — instead, most of it covers interest costs. Over time, as your loan balance decreases, a larger portion of each payment is applied to the principal.

Learn more about how mortgage amortization works.

Interest

The first “I” in PITI stands for the amount you pay toward interest each month. Interest is what your lender charges you to borrow the money you need for a mortgage. In the early years of your loan, more of your money goes toward repaying interest than principal.

Your mortgage rate can either be fixed or adjustable. Fixed-rate mortgages have an interest rate that stays the same for the entire loan term. In contrast, adjustable-rate mortgages (ARM) have an interest rate that can change throughout the loan term, which can affect your PITI payments.

You can reduce how much interest you pay over time by making extra payments or choosing a shorter loan term to pay off your mortgage faster.

Taxes

The “T” in PITI stands for the amount you pay toward property taxes each month. Many lenders spread out the cost of your annual tax bill into your monthly PITI payments. The funds are typically set aside in an escrow account that your lender draws from to pay your property tax bills when they come due each year.

Your home’s value, as well as how much of it is taxable, can change from year to year. These and other factors can lead to fluctuations in your PITI payment over time. If you’re curious about how property taxes in your area stack up against the rest of the country, check out LendingTree’s recent study on where people pay the most in property taxes.

Read more about whether you can get a tax break for buying a home.

Insurance

The second “I” in PITI stands for the amount you pay toward insurance each month. This generally refers to your homeowners insurance, but may also include private mortgage insurance (PMI), or a mortgage insurance premium (MIP), which is required for FHA loans.

Lenders usually require homeowners insurance because it protects their investment in your home in the event of damage or theft. Keep in mind: If you live in an area prone to natural disasters like earthquakes or floods, you may need to purchase additional coverage.

Why PITI matters

PITI is important because lenders set limits on how high your debt-to-income (DTI) ratio can be — with mortgage payments typically a large part of that debt burden. So if your PITI payment pushes your DTI ratio too high, it could lead to a smaller mortgage preapproval amount or an outright loan denial.

Understanding PITI can also help you estimate your mortgage payments and narrow down your home search to properties within your budget.

How to calculate PITI

1. Calculate your principal and interest

Use a mortgage calculator to estimate your monthly principal and interest payments. For example, a borrower buying a $350,000 home and making a 20% down payment would end up with a $280,000 loan amount. Based on a 6.4% mortgage rate, the monthly principal and interest payment would be $1,751.

2. Estimate your taxes and insurance

To estimate your monthly tax bill, research tax rates in your desired neighborhood. You could also ask the home seller or local tax assessor for the property’s tax records. Homeowners pay a median property tax of about $247 a month ($2,969 annually), according to a recent LendingTree analysis.

And if you know the property you want to buy, gather homeowners insurance quotes from a few different lenders to get an idea of the prices. On average, homeowners pay about $2,801 annually (about $233 monthly) for home insurance policies. Keep in mind that property tax and homeowners insurance costs can change, which can impact your PITI payments.

3. Add it all together

Once you have a good idea of how much each of the four components will cost you, combine them to get your total PITI payment. Using the numbers above, here’s what your monthly payment might look like:

Principal and interest: $1,751
Taxes: $247
Insurance: $233

Total PITI payment: $2,231

Once you’ve calculated the PITI for a specific loan, you may still need help deciding whether it’s truly affordable. LendingTree’s home affordability calculator lets you simultaneously calculate your PITI payment and get an idea of how much house you can afford. Keep an eye on the DTI ratio as you use the slider to try out different monthly payments and home prices.

What is the 28% PITI rule?

The 28% PITI rule refers to the fact that lenders usually require that your PITI payment be less than or equal to 28% of your monthly gross income. This is also called your “front-end” DTI ratio.

Frequently asked questions

Your PITI payment generally doesn’t include homeowners association (HOA) fees. If you live in a community run by an HOA, you’ll need to pay those fees in addition to your mortgage payment.

Utility bills, such as water and electricity, are not included in a PITI payment. You’ll need to make separate payments to your utility companies.

There are several ways to potentially lower your PITI payment. These include shopping around for the best homeowners insurance rates, increasing your down payment and refinancing to a mortgage with better terms.

It depends. Some lenders allow you to pay your taxes and insurance separately instead of requiring an escrow account. Generally, if you put down more than 20% on a conventional loan, you may be able to skip escrow and pay these expenses directly.

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