How to Calculate Your Mortgage Payment (PITI Explained)
Most homebuyers know their mortgage payment has something to do with principal and interest. Fewer know exactly what else goes into it. The acronym is PITI: Principal, Interest, Taxes, and Insurance. Miss any of those four and your estimate will be off by hundreds of dollars per month.
Here's how each piece works, how to calculate it, and where the math gets messy.
What PITI Actually Means
Principal is the money you borrowed. Every month, part of your payment goes toward paying it down. In the early years of a 30-year loan, very little of your payment touches principal. By year 25, most of it does.
Interest is what the lender charges you to borrow the money. It's calculated as a percentage of your remaining balance, which means it shrinks slowly over time as you pay the loan down. At 6.95% on a $360,000 loan, you're paying about $2,085 in interest during the first month alone.
Taxes are property taxes collected by your local government. Lenders typically require you to pay 1/12 of the annual bill each month, held in escrow, and disbursed when the tax bill comes due. Rates vary wildly by state — Texas averages 1.60%, Hawaii averages 0.32%.
Insurance has two forms. Homeowners insurance (required by every lender) covers fire, theft, and liability. Mortgage insurance (PMI or MIP) applies if you put less than 20% down on a conventional loan, or any down payment on an FHA loan.
The Formula for Principal and Interest
The monthly payment on a fixed-rate mortgage uses this formula:
M = P × [r(1+r)^n] / [(1+r)^n − 1]
Where:
M = monthly payment
P = principal (the loan amount)
r = monthly interest rate (annual rate ÷ 12 ÷ 100)
n = total number of payments (years × 12)
A Real Example: $400,000 Home, 10% Down
Let's run the math on a typical 2026 purchase.
| Line item | Amount |
|---|---|
| Home price | $400,000 |
| Down payment (10%) | $40,000 |
| Loan amount | $360,000 |
| Interest rate (Freddie Mac PMMS, 17/09/2026) | 6.95% |
| Loan term | 30 years |
Plug into the formula:
r = 6.95 ÷ 12 ÷ 100 = 0.005792
n = 30 × 12 = 360
M = 360,000 × [0.005792 × (1.005792)^360] / [(1.005792)^360 − 1]
M ≈ $2,384.56
That's principal and interest only. The full PITI payment depends on taxes and insurance.
Adding Taxes and Insurance
Assume you bought in a state with a 1.20% property tax rate (close to the national average) and your homeowners insurance is $1,800 per year.
| Component | Monthly |
|---|---|
| Principal & Interest | $2,384.56 |
| Property tax ($400k × 1.20% ÷ 12) | $400.00 |
| Homeowners insurance ($1,800 ÷ 12) | $150.00 |
| PMI (10% down, ~0.5% ÷ 12 of loan) | $150.00 |
| Total PITI + PMI | $3,084.56 |
The gap between "P&I only" ($2,384) and the real total ($3,084) is about $700 per month — roughly $8,400 per year. That's why calculators that only show P&I are misleading.
Why Manual Calculation Gets Messy
The formula above is clean. The real world isn't.
Property tax rates vary by county, not state. Texas averages 1.60%, but within Texas, rates range from 1.20% to 2.50% depending on the school district. You need the exact rate for the specific address.
Insurance depends on the property. A 1950s ranch home with an updated roof costs less to insure than a 1920s Victorian with original wiring. Quotes vary by 40% or more for identical coverage.
PMI drops off, MIP doesn't. Conventional PMI disappears automatically at 20% equity. FHA MIP (for loans with less than 10% down) lasts for the life of the loan. The monthly amount is the same; the duration isn't.
Escrow adjusts annually. Your lender re-estimates taxes and insurance every year. If property values rise, your payment goes up even with a fixed-rate mortgage.
Run the numbers with the Mortgage Calculator — it uses current rates and lets you enter the exact tax and insurance figures for your area.
How to Use PITI to Budget
Lenders follow a rule called the 28/36 ratio. Your housing costs (PITI) shouldn't exceed 28% of your gross monthly income. Total debt payments (including car loans, credit cards, student loans) shouldn't exceed 36%.
On a $7,500 monthly income:
Maximum housing: $7,500 × 28% = $2,100 per month
Maximum total debt: $7,500 × 36% = $2,700 per month
If you already pay $500 per month in car and student loans, your housing budget drops to $2,200 ($2,700 − $500). In that scenario, a $400,000 home at today's rates is out of reach. A $280,000 home with the same terms would fit.
The Extra Costs PITI Doesn't Include
PITI covers the recurring monthly payment. It doesn't cover:
HOA fees. Condos and many single-family homes in planned communities charge monthly HOA dues. Average: $200-$400 per month for condos, $50-$200 for single-family.
Maintenance. Budget 1% of the home's value per year for repairs and upkeep. On a $400,000 home, that's $4,000/year, or $333/month, set aside.
Closing costs. One-time fees at purchase, typically 2-5% of the loan amount. On a $360,000 loan, expect $7,200-$18,000.
Utilities. Electric, water, gas, trash, internet. Varies widely, but $200-$400/month is typical in most US markets.
Add those to a $3,084 PITI payment and the true monthly cost of ownership is closer to $3,800-$4,200.
Frequently Asked Questions
Why does my payment change every year?
Two reasons. First, escrow analysis: your lender recalculates taxes and insurance annually, and adjusts your monthly payment to match. Second, if you have an adjustable-rate mortgage, the interest rate itself resets on a schedule (usually every 6 or 12 months after the fixed period ends).
How much should I put down?
20% avoids PMI on a conventional loan and is the traditional target. But 10% with PMI often makes more financial sense than waiting years to save the extra 10% — especially when home prices are rising faster than your savings. Run the break-even to see which works for your situation.
Does the formula change for 15-year loans?
No. Only n changes: 15 × 12 = 180 payments instead of 360. The monthly payment increases significantly (roughly 40% higher), but total interest paid drops by more than half.
Can I calculate PMI separately?
Yes. PMI typically ranges from 0.3% to 1.5% of the loan amount per year, depending on your credit score and down payment. On a $360,000 loan with 10% down and a 720 credit score, expect around 0.5%, or $150 per month.
What if I can't afford PITI on the house I want?
Three options: increase your down payment, buy in a lower tax-rate area, or look at a lower price range. Waiting a year for rates to drop is also a strategy, but rates are unpredictable. The 28/36 rule is the safest guide.
Conclusion
PITI is the number that matters — not just principal and interest. Taxes, insurance, and mortgage insurance can add 25-30% to your monthly obligation. Calculate all four before you commit.
Use the Mortgage Calculator for a real PITI estimate with current rates and customizable tax and insurance inputs.
Josimar Nascimento
Founder, CalcPier
Josimar built CalcPier to help American homebuyers compare loan programs without lender pressure. He translates HUD, CFPB, and Freddie Mac data into plain English.
Sources
- Consumer Financial Protection Bureau, "What is PITI?" — consumerfinance.gov
- Freddie Mac, Primary Mortgage Market Survey — freddiemac.com
- Tax Foundation, "Property Taxes by State" — taxfoundation.org