How to Calculate a Mortgage Payment: PITI, Taxes & Insurance
A complete homeowner's guide to principal, interest, property taxes, homeowners insurance, and PMI.
What Makes Up a Mortgage Payment? (The PITI Acronym)
When budgeting for a home purchase, prospective buyers frequently calculate only the loan principal and interest. However, your actual monthly payment to your mortgage servicer almost always includes an escrow collection for property taxes and hazard insurance. In real estate, this total sum is known as PITI:
- P (Principal): The portion of the payment that pays down your original borrowed loan balance.
- I (Interest): The financing fee charged by the lender for borrowing the capital.
- T (Taxes): Annual municipal and county property taxes, divided into 12 equal monthly escrow deposits.
- I (Insurance): Homeowners hazard insurance premium, plus private mortgage insurance (PMI) if applicable.
The Principal & Interest Calculation Formula
The core loan repayment component (P + I) is calculated using the standard mortgage amortization equation:
Where:
- P: Financed mortgage principal (Purchase Price minus Down Payment).
- i: Monthly interest rate (Annual rate ÷ 12).
- n: Total number of monthly payments (e.g. 360 months for a 30-year loan, 180 months for a 15-year loan).
Step-by-Step Worked Example: $400,000 Home Purchase
Consider purchasing a home for $400,000 with a 20% down payment ($80,000), leaving a loan principal of $320,000 on a 30-year fixed mortgage at 6.5% interest. Annual property taxes are $4,200 and hazard insurance is $1,500 per year:
- Calculate Monthly Principal & Interest: P = $320,000, i = 0.065 / 12 ≈ 0.0054167, n = 360. Applying the formula yields $2,022.61/month.
- Calculate Monthly Property Tax Escrow: $4,200 / 12 = $350.00/month.
- Calculate Monthly Homeowners Insurance: $1,500 / 12 = $125.00/month.
- Sum Complete PITI Payment: $2,022.61 + $350.00 + $125.00 = $2,497.61 per month.
Taxes and insurance add $475.00 every month—nearly 24% on top of the base loan payment.
The Impact of Down Payments & Private Mortgage Insurance (PMI)
If you put down less than 20% of the purchase price on a conventional mortgage, lenders mandate Private Mortgage Insurance (PMI) to protect themselves against default:
- PMI typically costs between 0.3% to 1.5% of the initial loan amount annually.
- On a $320,000 mortgage with a 1.0% PMI rate, this adds an extra $3,200 annually, or approximately $266.67 per month to your escrow payment.
- Once your loan balance reaches 80% of the original home value through regular payments, you can formally request PMI cancellation under the Homeowners Protection Act.
15-Year vs. 30-Year Fixed Mortgages
Choosing between a 15-year and 30-year term is a balance between monthly cash flow and lifetime interest savings:
| Metric ($320k Loan) | 30-Year Fixed at 6.5% | 15-Year Fixed at 5.75% |
|---|---|---|
| Monthly P&I | $2,022.61 | $2,657.48 |
| Total Interest Paid | $408,139.60 | $158,346.40 |
| Total Lifetime Cost | $728,139.60 | $478,346.40 |
| Lifetime Savings | Benchmark | $249,793.20 |
A 15-year mortgage requires a $634.87 higher monthly payment, but saves nearly a quarter-million dollars in interest and builds equity twice as fast.
Estimate Your Complete Housing Payment
Model your home purchasing budget with complete precision using our client-side tools:
- Compute full PITI payments and custom tax schedules with our Mortgage Calculator.
- Compare amortized payment structures using our dedicated Loan Calculator.
Put This Into Practice
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