Understanding Your Mortgage Payment
PITI · Escrow · Private Mortgage Insurance
When you buy a home, your monthly mortgage payment consists of much more than just the loan amount. A basic calculator that only looks at "Principal and Interest" will severely underestimate your actual monthly costs. You need to calculate PITI.
What is PITI?
PITI is an acronym that stands for Principal, Interest, Taxes, and Insurance. Lenders use this figure to determine if you can afford the loan.
- Principal: The portion going to pay down your loan balance.
- Interest: The fee the bank charges to lend you the money.
- Taxes: Annual property taxes assessed by your local county.
- Insurance: Homeowners insurance to protect the property.
Escrow Accounts
Instead of making you pay a massive tax and insurance bill once a year, lenders will usually divide these annual costs by 12 and add them to your monthly payment. They hold this money in an "Escrow" account and pay the bills for you when they are due.
The PMI Trap
If you put down less than 20% of the home's purchase price, the lender will force you to pay Private Mortgage Insurance (PMI). This insurance protects the lender (not you!) in case you stop making payments.
PMI typically costs between 0.5% and 1.5% of the total loan amount every year, divided into monthly payments. Our calculator automatically estimates this cost if you enter a down payment of less than 20%. The good news? You can ask your lender to remove PMI once you have paid off enough of the loan to reach 20% equity.