## PITI Calculator

## What is PITI

**PITI**, pronounced as “pity,” stands for **Principal, Interest, Taxes, and Insurance**—all of which are essential components of a mortgage payment. Let’s break down what each of these elements represents:

**Principal**:- A portion of each mortgage payment goes toward
**repaying the principal amount**—which is the actual loan itself. - For instance, if you have a $100,000 mortgage, the principal is $100,000.
- Over time, the amount of principal repaid gradually increases.

- A portion of each mortgage payment goes toward
**Interest**:**Interest**is the cost you pay for borrowing money.- In the early years of a mortgage, a larger portion of your payment goes toward interest.
- As time passes, the ratio shifts and more of your payment goes toward reducing the principal.
- For example, if your mortgage interest rate is 6%, the combined monthly payment for principal and interest on a 30-year mortgage would be approximately $599.55 (with $500 for interest and $99.55 for principal).

**Taxes**:**Real estate or property taxes**are assessed by local governments to fund public services such as schools, police forces, and fire departments.- These taxes are calculated annually, but you can include them as part of your monthly mortgage payments.
- The lender collects the payments and holds them in escrow until the taxes are due.

**Insurance**:**Homeowners insurance**protects your home and its contents from events like fire, theft, and other disasters.- Additionally, there’s
**private mortgage insurance (PMI)**, which is mandatory for homebuyers with a down payment of less than 20% of the home’s cost. - Both types of insurance premiums can be paid along with your mortgage installments and held in escrow until the bills are due.

**PITI** helps both buyers and lenders determine the affordability of an individual mortgage. Lenders generally prefer the PITI to be equal to or less than 28% of a borrower’s gross monthly income. So, when considering a mortgage, keep these components in mind to make informed decisions! 🏠🌟

## How to Calculate PITI Payment

Calculating your **PITI payment** (Principal, Interest, Taxes, and Insurance) is essential when evaluating the total monthly cost of your mortgage. Let’s break down how to calculate it:

**Principal (P)**:- The principal is the
**amount of your loan**(excluding interest). - It’s typically the cost of your house minus your down payment.

- The principal is the
**Interest (I)**:- Interest represents the
**cost of borrowing money**. - In the early years of your mortgage, a larger portion of your payment goes toward interest.

- Interest represents the
**Taxes (T)**:- Property taxes are assessed by local governments to fund public services.
- You can find the exact amount on the county website or from your real estate agent.

**Insurance (I)**:- Homeowners insurance protects your property against events like fire, theft, and other disasters.
- Private mortgage insurance (PMI) is also included if your down payment is less than 20%.

Now, let’s calculate your **PITI** using the following formula:

**PITI = Monthly Tax + Monthly Insurance + Monthly Mortgage Payment**

Here’s how to compute each component:

**Monthly Tax**:- Divide your annual tax amount by 12.
- For example, if you need $3,600 annually for property tax, your monthly tax is $300.

**Monthly Insurance**:- Divide your annual insurance cost by 12.
- If your insurance cost is $1,200 per year, your monthly insurance is $100.

**Monthly Mortgage Payment**:- Use a mortgage payment calculator to determine this value.
- For instance, if you borrow $200,000 for 30 years at 7%, your monthly mortgage payment is approximately $1,330.60.

Now add these three terms together:

**PITI = $300 + $100 + $1,330.60 = $1,730.60**

Understanding your PITI helps you calculate your **Debt-to-Income (DTI) ratio**, which lenders consider when deciding how much you can safely borrow. Most lenders use the DTI 28% rule as an initial estimate to determine loan eligibility