Question:

Can you tell me how to calculate PITI?

Answer:

PITI is the sum of monthly Principal, Interest, Taxes and Insurance payments and it is pretty to easy to determine once you have the following preliminary information:

  • Mortgage amount
  • Interest rate
  • Payback period (in number of months)
  • Federal/Local real estate taxes
  • Insurance premiums

Once you have this information you need to do some calculations to get PITI. We'll show you how to do these calculations with the help of an example. It is important to mention

Calculating PITI:

Consider a mortgage of $80,000 at 6% interest rate. By using the monthly payment formula** we get:

Monthly payment = $888

This monthly payment is the sum of your monthly Principal and Interest payments. So now half your job is complete and now you only have to calculate the monthly tax and insurance payments.

To calculate your real estate tax payments, you need to consult local tax laws and procedures. Taxes are generally annual payments and are generally divided by 12 to convert them into a monthly figure. For the purpose of our example let's consider the tax payment to be $1800 for a year. This means that the monthly tax payment is $150.

Now only the insurance payment is left. To calculate it, review your hazard insurance (homeowner's insurance) policy, which would state your yearly premium. Divide the yearly premium by 12 to get a monthly figure. Insurance figures vary greatly for similarly valued mortgages and for our example let's assume a yearly insurance premium of $1500, which means a monthly insurance payment of $125.

So now we can easily calculate PITI as follows:

PITI = $888 + $150 + $125
PITI = $1163

** M = P [ i(1 + i)n ] / [ (1 + i)n - 1],
where, M is the Monthly payment
i is the Monthly interest rate
n is the payback period (in no. of months)
P is the Principal or value of the mortgage

If you are not comfortable with using the mortgage formula yourself, you can use an online mortgage payment calculator instead.

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