If you’re planning to buy a home in 2019, odds are you’re doing some research on what your dream kitchen will look like. You may also be doing some research on mortgage options and perhaps you’ve stumbled on the acronym PITI.
What is PITI? PITI stands for principal, interest, taxes and insurance. PITI is your total monthly mortgage payment.
When you make your monthly mortgage payments, only a portion of that payment goes to decreasing the original loan amount, or the principal. Gradually, though, depending on the type of mortgage you have, more of your monthly PITI payments go toward the principal. The more principal you have paid, the more equity you have in the property. Use our amortization calculator to figure out the relationship between principal and interest on your home loan. Keep in mind that interest-only loans do not include principal payments.
The interest portion of PITI is usually the largest portion of your monthly mortgage payment early in your loan repayment. Interest is something a lender charges you for borrowing the money. The good news is that mortgage interest is tax-deductible, lowering your annual tax bill. Usually, depending on what type of mortgage you have, the interest paid each month will drop over the life of the loan.
Your mortgage servicer will collect money every month for annual property taxes as part of the mortgage payment and then pay the tax bill on your behalf. The tax portion of PITI can go up and down depending on local tax rates, potentially changing your monthly mortgage payments.
PITI may include payments for two types of insurance: homeowner’s insurance and private mortgage insurance. Homeowner’s insurance covers damage to your home and property from theft, fire and other kinds of disasters. The loan servicer pays the insurer directly. Every lender will require you to have homeowner’s insurance on your new home.
Private mortgage insurance (PMI) is required by lenders for borrowers who pay less than 20 percent of the home’s value as a down payment. It protects the bank’s investment in your loan in the event of default. Depending on your down payment, you may not have to pay PMI.
Calculating Your PITI
You can calculate your monthly PITI payment by taking your annual property tax and insurance bills, dividing by 12, and adding that amount to your monthly principal and interest payment to understand your total monthly mortgage payment. Or let us help; fill out the form below and we’ll call you to calculate your PITI!