What is PITI? Principal, Interest, Taxes & Insurance Explained
Mortgage calculators that show only "principal and interest" understate your real monthly cost by 15–30%. PITI is the four-part figure lenders actually use when they decide how much you can afford. Here's what each letter pays for, with a worked example for a $400,000 home.
The four letters
PITI stands for Principal, Interest, Taxes, Insurance — the four pieces that together form your real monthly housing cost on a typical owner-occupied home loan.
- Principal: the slice of your payment that pays down what you actually owe. Each month a tiny bit larger than the previous month.
- Interest: what the lender charges you for the loan. Each month a tiny bit smaller than the previous month, because it's calculated against a shrinking balance.
- Taxes: property tax, collected monthly by the lender and held in escrow until the county sends a bill (usually annually or semi-annually).
- Insurance: homeowner's insurance — the policy that pays out if the house burns down, gets robbed, or is hit by a tree. Also collected via escrow.
Two extras you'll see thrown in with PITI even though they're not part of the acronym:
- PMI (private mortgage insurance) — required by lenders on conventional loans when you put down less than 20%. Drops off automatically when you reach 78% loan-to-value.
- HOA dues — only relevant for condos, townhomes, and planned communities. Not collected via escrow; you usually pay the HOA directly.
Worked example: $400,000 home, 20% down, 6.5% APR, 30 years
Let's run a realistic 2026 scenario through the formulas:
- Home price: $400,000
- Down payment: $80,000 (20%) → loan principal of $320,000
- Rate: 6.5% APR fixed → monthly rate of
0.065 / 12 ≈ 0.005417 - Term: 30 years → 360 monthly payments
- Property tax rate: 1.2% of home value annually → $4,800/year → $400/month
- Homeowner's insurance: $1,500/year → $125/month
The principal-and-interest portion comes from the standard amortization formula:
M = P × (r(1+r)n) / ((1+r)n − 1) ≈ $2,022.62
Add it all up:
| Component | Monthly amount | Share of payment |
|---|---|---|
| Principal & Interest | $2,022.62 | 79.4% |
| Property Tax | $400.00 | 15.7% |
| Insurance | $125.00 | 4.9% |
| Total PITI | $2,547.62 | 100% |
The "principal and interest only" number a quick calculator might show you is $2,022.62. The number your lender will actually evaluate against your income — and the number that has to fit your budget — is $2,547.62. That's a 26% gap, big enough to make the difference between affordable and not.
Why lenders care
Underwriters look at two ratios when they decide if you qualify for a loan:
- Front-end ratio (housing ratio): PITI ÷ gross monthly income. Most lenders want this under 28%.
- Back-end ratio (debt-to-income): (PITI + all other monthly debt payments) ÷ gross monthly income. Most lenders want this under 36%, though some go up to 43% for qualified mortgages.
Notice that both ratios use PITI, not just principal and interest. A borrower who can afford the P&I but not the tax and insurance escrow gets denied — those numbers are part of the qualifying calculation.
Common gotchas
Property tax varies wildly by county
Effective property tax rates range from about 0.3% in Hawaii to over 2.0% in New Jersey, Illinois, and parts of Texas. Two identical houses across a state line can have monthly PITI that differs by hundreds of dollars. Always look up the actual effective rate for your county before estimating.
Insurance has gotten more expensive
Homeowner's insurance premiums in the US have risen roughly 30% in the past five years, driven primarily by climate-related claims (hurricanes, wildfires, hail). The "$1,200 a year is normal" advice is now outdated in many regions; get an actual quote rather than estimating.
PMI vs MIP vs FHA insurance
If you have a conventional loan with less than 20% down, you pay PMI. If you have an FHA loan, you pay MIP (mortgage insurance premium) — which works differently and often doesn't drop off automatically. VA and USDA loans have their own funding fees. A "PITI" estimate that assumes no mortgage insurance can be off by $100–300/month for low-down-payment loans.
Escrow analysis surprises
Lenders re-evaluate your escrow account once a year. If property tax or insurance went up, your monthly payment goes up — sometimes substantially — and you may be hit with an "escrow shortage" lump sum. PITI is a snapshot, not a fixed quantity for the life of the loan.
How to use a PITI calculator
Our mortgage calculator takes the four inputs above plus PMI and returns the full PITI breakdown along with a year-by-year amortization schedule. Common scenarios to run:
- Stress-test the rate: add 1% to the current rate. If the resulting PITI breaks your budget, you're shopping at the top of your range.
- Stress-test the tax rate: add 0.3% to the local property tax rate. Some new buyers are surprised to find their tax bill higher than the prior owner's because of reassessment.
- Compare 15- vs 30-year terms: the monthly PITI difference is usually smaller than people expect; the lifetime interest difference is enormous. We have a separate guide on this trade-off.