How to Calculate a Mortgage Payment (PITI)
Your monthly mortgage payment has four components — principal, interest, property taxes, and homeowners insurance — collectively called PITI. The principal and interest portion is calculated with a fixed formula based on your loan amount, interest rate, and term. Adding the tax and insurance escrow amounts gives you the true out-of-pocket number lenders use to qualify you and that you budget against every month.
The P&I formula: where the math starts
The principal and interest (P&I) portion of a fixed-rate mortgage is calculated using the standard loan amortization formula:
L = loan amount (home price minus down payment)
r = monthly interest rate = annual rate ÷ 12
n = total number of monthly payments = years × 12
The formula looks intimidating, but its logic is straightforward: it spreads the loan balance plus all future interest into equal monthly installments so that the loan reaches exactly zero at the end of the term. Every payment is the same dollar amount, even though the split between principal and interest shifts continuously — more toward interest early, more toward principal later.
Worked example: $320,000 loan at 7% for 30 years
Take a $400,000 home with a 20% down payment ($80,000). The loan amount is $320,000. The interest rate is 7% per year. The term is 30 years (360 payments).
n = 30 × 12 = 360
(1 + r)n = (1.005833)360 ≈ 8.1165
Monthly P&I = 320,000 × [0.005833 × 8.1165] ÷ [8.1165 − 1]
= 320,000 × 0.04733 ÷ 7.1165
= 320,000 × 0.006653
= $2,129/month
That $2,129 covers only the principal repayment and the lender's interest charge. It does not include property taxes, insurance, or PMI — those come next.
Adding T and I: from P&I to PITI
Most lenders collect property taxes and homeowners insurance monthly as part of your mortgage payment and hold the funds in an escrow account, paying the bills on your behalf when they come due. That is why your payment is higher than just the P&I figure.
| Component | Typical range | Example (this loan) | Monthly amount |
|---|---|---|---|
| Principal & Interest | Calculated by formula | $320k @ 7%, 30 yr | $2,129 |
| Property Tax | 0.5%–2.5% of home value/yr | 1.1% × $400k ÷ 12 | $367 |
| Homeowners Insurance | $1,000–$2,500/yr | $1,500/yr ÷ 12 | $125 |
| Total PITI | $2,621 |
Property tax rates vary significantly by state and county — 0.3% in Hawaii, over 2% in parts of New Jersey and Illinois. Your county assessor's website lists the exact rate for any address. Homeowners insurance depends on location, coverage amount, and the home's age and construction, but $1,200–$2,000 per year is a reasonable starting estimate for most single-family homes in the continental US.
PMI: when your down payment is below 20%
If your down payment is less than 20% of the purchase price, conventional lenders require Private Mortgage Insurance (PMI). PMI protects the lender — not you — if you default, and it adds a real cost to your monthly payment.
Typical PMI rates run from 0.3% to 1.5% of the loan amount per year, depending on your credit score, down payment size, and loan-to-value ratio. At 0.5% on a $320,000 loan, that is $1,600 per year — or $133 per month added on top of your PITI. On a smaller down payment (say 5%), the same loan principal would be higher and PMI could easily run $200–$250/month.
How amortization shifts the interest/principal split
A fixed monthly payment does not mean a fixed split between interest and principal. In the early years of a loan, most of each payment goes toward interest because the outstanding balance is large. As you pay down the principal, the interest charge each month shrinks and more of your fixed payment can go toward reducing the balance. This gradual shift is called amortization.
On the $320,000 example at 7% for 30 years, here is how the split looks at three points in time:
| Payment month | Interest portion | Principal portion | Remaining balance |
|---|---|---|---|
| Month 1 | $1,867 (88%) | $262 (12%) | $319,738 |
| Month 120 (year 10) | $1,614 (76%) | $515 (24%) | $276,682 |
| Month 240 (year 20) | $1,198 (56%) | $931 (44%) | $204,961 |
| Month 359 (last year) | $25 (1%) | $2,104 (99%) | $2,116 |
The total interest paid over the life of a 30-year, $320,000 loan at 7% is approximately $447,000 — meaning you pay about 2.4 times the original loan amount in total. This is why interest rate differences and extra payments matter so much: they attack the balance directly and reduce all the future interest that would have compounded on top of it.
The impact of rate and term on your payment
Two variables dominate your P&I calculation: the interest rate and the loan term. A lower rate reduces the monthly payment and dramatically cuts total interest. A shorter term raises the monthly payment but slashes total interest even more because the balance is paid down faster.
| Loan amount | Rate | Term | Monthly P&I | Total interest paid |
|---|---|---|---|---|
| $320,000 | 6.5% | 30 yr | $2,023 | $408,000 |
| $320,000 | 7.0% | 30 yr | $2,129 | $447,000 |
| $320,000 | 7.5% | 30 yr | $2,238 | $486,000 |
| $320,000 | 6.5% | 15 yr | $2,790 | $182,000 |
| $320,000 | 7.0% | 15 yr | $2,876 | $197,000 |
The difference between a 6.5% and a 7.5% rate on a 30-year loan is $215/month and roughly $78,000 in total interest over the life of the loan. Shopping even two or three lenders before locking a rate is one of the highest-return actions a homebuyer can take — it costs nothing and the savings are permanent.
Extra payments: the fastest way to reduce total cost
Any amount you pay beyond the required monthly P&I goes directly toward reducing the principal balance. Because all future interest is calculated on that balance, reducing it early has a compounding effect: less principal means less interest each month, which means more of each subsequent regular payment also goes to principal. The effect snowballs.
On the same $320,000 loan at 7% for 30 years, an extra $200 per month cuts the payoff from 30 years to about 23 years and saves roughly $110,000 in total interest. An extra $500/month cuts it to about 19 years and saves over $170,000. These are guaranteed, risk-free returns equal to your mortgage interest rate — worth comparing carefully against other uses of that cash.
Lender affordability: how PITI determines what you can borrow
Lenders do not care only about your P&I; they underwrite against your full PITI payment plus any other monthly debt obligations. The standard measure is the debt-to-income ratio (DTI):
Most conventional lenders cap DTI at 43–45% for approval. Some will go to 50% with compensating factors (large reserves, high credit score). An FHA loan allows DTI up to 57% in some cases.
Example: $8,000/month gross income × 43% = $3,440 max total monthly debt. If your car payment and student loan total $500, your maximum PITI is $2,940.
This is why PITI — not just P&I — is the number that matters when you are figuring out how much house you can afford. A $2,129 P&I payment becomes $2,621 PITI once taxes and insurance are added, and potentially $2,750+ if PMI applies. Running the full number before you start shopping prevents the painful discovery that your dream home's total payment exceeds your qualifying limit.
Calculate your exact PITI payment
Figro's free mortgage calculator runs the full P&I formula, adds taxes, insurance, HOA, and PMI, shows a complete amortization schedule, and models how extra payments cut your payoff date. Everything runs in your browser — no signup, nothing uploaded.
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