How to Calculate Your Mortgage Payment (PITI Formula Explained)

Understanding the PITI Payment Formula

Every monthly mortgage payment is made up of distinct components that together determine whether a home fits your budget. PITI — Principal, Interest, Taxes, and Insurance — is the standard framework lenders and financial advisors use to calculate your total housing cost. Principal and interest are determined by your loan amount, interest rate, and term. Property taxes depend on your home's assessed value and local mill rates. Insurance covers your dwelling against fire, wind, and liability claims. Understanding each piece separately lets you verify lender estimates, compare loan offers accurately, and avoid surprises at closing when your actual payment differs from the quote you received weeks earlier.

Many online mortgage calculators show only principal and interest, which understates your true monthly obligation by $400 to $800 or more in high-tax or high-insurance areas. A payment quoted at $1,996 per month for principal and interest might actually cost $2,600 to $2,800 once taxes, insurance, and PMI are included. When evaluating affordability, always use the full PITI figure. Our Monthly Payment Calculator includes all components by default, and the Affordability Calculator uses PITI to determine your maximum home price based on income and debt.

Step 1: Calculate Principal and Interest

The core of your mortgage payment is principal and interest, calculated using the standard amortization formula. Start with your loan amount — the purchase price minus your down payment. For a $375,000 home with 20% down, the loan amount is $300,000. Convert your annual interest rate to a monthly rate by dividing by 12: 7% becomes 0.005833. Determine the total number of payments by multiplying the loan term in years by 12 — 30 years equals 360 payments. Plug these into the formula M = P × [r(1+r)^n] / [(1+r)^n − 1] to get a monthly principal and interest payment of approximately $1,996.

The amortization schedule shows how each payment splits between principal and interest over time. In month one of our example, $1,750 goes to interest and $246 reduces the loan balance. By month 120 — the 10-year mark — the split is roughly $1,430 interest and $566 principal. This front-loaded interest structure means extra payments made in the early years of a loan have an outsized impact on total interest paid. Adding just $200 per month to your payment in year one can eliminate four to six years from a 30-year term and save $60,000 or more in interest over the life of the loan.

Step 2: Add Property Taxes and Insurance

Property taxes are calculated as a percentage of your home's assessed value, set by your local tax authority. If your home is assessed at $375,000 and your effective tax rate is 1.2%, your annual tax bill is $4,500, or $375 per month. Assessed value may differ from market value — many jurisdictions cap annual assessment increases for homesteaded properties. Homeowners insurance premiums vary by state, home age, construction type, and coverage level. Budget $1,200 to $2,400 annually ($100 to $200 per month) for a standard policy in most inland states, and significantly more in hurricane or wildfire zones as detailed in our Florida mortgage guide.

Private Mortgage Insurance (PMI)

If your down payment is less than 20%, lenders require private mortgage insurance to protect themselves against default. PMI typically costs 0.5% to 1.5% of the loan amount annually, divided into monthly payments. On a $300,000 loan, PMI adds $125 to $375 per month until you reach 20% equity through paydown or appreciation. FHA loans use MIP (mortgage insurance premium) instead of PMI, which often lasts for the life of the loan unless you refinance. The surest way to eliminate mortgage insurance is a 20% down payment — on our $375,000 example, that means $75,000 down, which saves $125 to $375 per month from day one.

• Principal & Interest on $300K at 7% / 30yr: ~$1,996/month
• Property taxes at 1.2% on $375K: ~$375/month
• Homeowners insurance (~$1,800/yr): ~$150/month
• PMI on $300K loan (10% down): ~$125–$250/month
• Total PITI with 10% down: ~$2,646–$2,771/month
• Total PITI with 20% down: ~$2,521/month (no PMI)

Putting It All Together: A Complete Example

Let us calculate the full monthly payment for a buyer earning $95,000 purchasing a $375,000 home with 20% down at 7% interest over 30 years. Loan amount: $300,000. Principal and interest: $1,996 per month. Property taxes at 1.2%: $375 per month. Homeowners insurance at $1,800 annually: $150 per month. No PMI with 20% down. Total PITI: $2,521 per month. On a $95,000 salary ($7,917 gross monthly), this payment represents 31.8% of gross income — slightly above the 28% front-end guideline but potentially acceptable with low other debts and strong credit. Adding $200 in HOA fees pushes the ratio to 34.3%, which requires compensating factors for conventional approval.

The same home with 10% down tells a different story. The loan amount rises to $337,500, increasing principal and interest to approximately $2,246 per month. PMI adds $175 per month. Total PITI reaches $2,946 — 37.2% of gross income on a $95,000 salary, which exceeds conventional front-end guidelines and may require an FHA loan or debt reduction to qualify. This comparison illustrates why down payment size is so critical to affordability. Use our Affordability Calculator to run both scenarios with your actual income and see how down payment, rate, and location change your numbers instantly.