Our PITI calculator helps you evaluate the total monthly cost of your mortgage, which is crucial when you want to determine how much money you can afford to borrow to buy a new house. Here you can not only learn how to calculate PITI but also understand what PITI is and why it matters.
What is PITI?
PITI is an acronym of:
- Principal - the amount of your loan (not including interest). Most likely, it is the cost of your house minus your down payment.
- Interest - the rate at which the lender charges you for borrowing money. To learn more, check out our interest rate calculator.
- Tax - property tax charged at the municipal level. You can find the exact amount on the website of the county where the house is located or get it from your real estate agent.
- Insurance - protection for your property in case of fire, lightning storm, break-in, flooding, etc. Most often, it is not required by law, yet demanded by the lender.
Taking all of these into account, the PITI mortgage calculator gives you an accurate idea of your loan's monthly payments.
Why does PITI matter?
PITI allows you to calculate your Debt-to-Income (DTI) ratio, which helps you decide what amount of money you can safely borrow. The specific maximum value of DTI that will be deemed acceptable depends on region, yet most lenders use the DTI 28% rule as a first estimate when they decide whether to loan you money.
How to calculate PITI?
Based on the principal loan amount, interest rate, as well as annual tax and insurance cost, our calculator determines your PITI according to the following formula:
PITI = monthly tax + monthly insurance + monthly mortgage payment
- Monthly tax is your annual tax amount divided by 12
- Monthly insurance is your annual insurance cost divided by 12
- Monthly mortgage payment is calculated based on your principal loan amount and annual interest rate. How? We have the mortgage payment calculator :)
For instance, assume that each year 3,600$ is needed to cover the property tax and the insurance cost is 1,200$. Your expected monthly tax and insurance cost are therefore equal to
3600$ / 12 = 300$ and
1200$ / 12 = 100$, respectively. If you loan 200,000$ for 30 years at 7%, your monthly mortgage payment will be 1,330.60$. It remains to add together these three terms to get your PITI estimation:
PITI = 300$ + 100$ + 1330.60$ = 1730.60$
How does our PITI mortgage calculator work?
The exact formula implemented in this PITI calculator reads:
PITI = t / 12 + i / 12 + P * r / 12 * (1 + r / 12)ⁿ / [(1 + r / 12)ⁿ - 1]
- t is the annual tax amount, so t/12 is the monthly tax amount
- i is the annual insurance cost, so i/12 is the monthly insurance cost
- P is the principal loan amount
- r is the annual interest rate. Hence, r/12 which appears in the formula amounts to the monthly interest rate
- n is the number of monthly payments
Note that the term
P * r / 12 * (1 + r / 12)ⁿ / [(1 + r / 12)ⁿ - 1] is exactly the formula for the loan payment of amount P taken for n months at annual rate r.