Calculating Mortgage PITI

Daniel Hale By Daniel Hale
on October 11, 2017 at 8:48 AM, updated October 11, 2017 at 8:55 AM
Calculating the principal, interest, taxes and insurance on your loan can be a bit complicated to do manually.

Obtaining a mortgage is a significant financial and long-term commitment. A good strategy you can use to prepare for your mortgage is to understand how certain critical expenses are calculated. Most mortgages incur costs and charges that are added to your monthly payment during each month. Knowing how to calculate these costs puts you in a position to plan for your monthly payments and to avoid any surprises.

Close up young woman with calculator counting making notes

The most common mortgage costs are the PITI costs- Principal, Interest, Taxes, and Insurance. Each of these costs affects your mortgage in a different way, and keeping track of how they're calculated can give you a better understanding of your mortgage expenses.


The principal refers to the actual amount you owe on your loan. Any payments made towards the principal leads to a direct reduction in the loan amount. The goal for any homeowner should be to pay as much towards the principal during every payment, in order to reduce the mortgage amount and interest rates.

As you reduce the principal amount, you also increase the amount of equity that you have in the home.


The interest is also referred to as the cost of the loan. It is the amount that the mortgage lender charges you for borrowing money from them to buy a home. The interest is calculated as a percentage of the principal amount. In most cases, the interest is charged as a fixed percentage of the outstanding principal as you continue to pay on the mortgage. Therefore, the higher the principal, the higher the interest payment you will have to make for that particular month.

Interest can be charged at a fixed rate (a fixed percentage of the outstanding principal) or a variable rate (the percentage amount varies over the duration of the loan).


Property owners are required to pay real estate taxes on their property to the IRS. Property taxes are normally used by local municipalities to maintain and build schools, roads, police departments, etc. Taxes are added to your monthly payments, and they vary depending on your area.


When paying off a mortgage, most lenders require you to obtain homeowners' insurance. This is an insurance policy that protects the home against damages such as fire, floods, and inclement weather. The premium of the insurance policy is often added to your monthly mortgage payment.

If you paid less than 20% on your down payment, you may also be required to obtain Private Mortgage Insurance (PMI). This protects the lender against homeowners who default on paying their mortgages.

PITI Calculations

Calculating the principal, interest, taxes and insurance on your loan can be a bit complicated to do manually. The first step is to determine how many payments you need to make over the life of the loan. If you have a 30-year mortgage for which you make monthly payments, you will need to make 360 total payments.

Calculating the Monthly Interest

To get the interest amount that you'll be paying during each month, take the loan value (the total amount of the loan) and multiply it by the interest rate for each month. For example, if your loan amount is $450,000 at a 5% rate, the monthly interest rate will be 0.4%. The monthly interest amount will therefore be $1800.

Calculating the Principal

Once you have the interest amount for the month, you can subtract it from your monthly payment amount (which is the amount that you currently pay for your mortgage during each month) to get the principal payment for that particular month. Taking the example of a $450,000 loan at 5% rate: if your monthly payment is $2500, you would be paying $700 towards your principal every month.

You can now subtract the principal payment from the loan value to determine how much of your principal amount still remains to be paid off.

Calculating Insurance

The insurance amount is relatively easy to calculate. Simply take the yearly amount that is charged (from the insurance policy) and divide it by 12. This gives you the monthly premiums you will be paying.

Calculating Taxes

Taxes are also charged annually, and you can get your monthly tax amount by simply dividing the annual amount by 12.

With this information, you can now figure out your monthly payment amount that will go towards the mortgage. Simply add your interest payment, monthly principal, insurance premium and monthly taxes to get the total monthly payment amount.