P I T I —
This stands for Principal, Interest, Taxes and Insurance.
These four basic components are combined to determine the amount of your monthly mortgage payment. In most cases, your lender is in charge of paying the property taxes and hazard insurance on your house.1 To accomplish this, your lender will collect a certain amount of money from you each month to put in a reserve (or impound) account that will later go towards paying your Taxes and Insurance. Note: any mortgage insurance2 that you are paying is included in the insurance component of PITI.
The following Web Calculator can be used to determine how much your combined principal and interest (P&I) payment will be each month. Important: it does not include taxes and insurance—you will have to add these on your own (based on the value of your home and where you live).
Example: if you want to obtain a $65,000 loan at 8% interest for 30 years, then you would have to pay about $477 (not including taxes and insurance) each month for the next 360 months. If you also have to pay $25 for hazard insurance and $55 for property taxes, the total PITI would be $557.
1 You might be given the option of paying for property taxes and hazard insurance on your own, without help from the lender—although you may be charged a fee for this privilege. Also, it is important to realize that the new homeowner (unless otherwise stated) is in charge of finding his or her own hazard insurance company. The borrower should contact several insurance agents before the mortgage has to close. After finding an agent/company with which you are comfortable, you need to tell the mortgage loan officer or processor the name of your insurance agent so they can obtain the final information. Hazard insurance is generally considered a prepaid expense, so your lender will charge you for it at closing and then pay the insurance company after the loan closes.
2 Terms you may not fully understand are defined in detail in The Guide.