How to Calculate Your Mortgage Payment (PITI Explained)
When you buy a home, the check you send to your lender every month is rarely just the loan payment. Lenders bundle it under one label — PITI — which stands for principal, interest, taxes, and insurance. Getting comfortable with each piece matters, because this number is what you actually budget against, and it's the figure a lender compares to your income when deciding how much you can borrow.
Principal is the portion of your payment that shrinks the balance you owe. Interest is what the lender charges for letting you use its money. Taxes are your property taxes, and insurance usually means your homeowners insurance premium — plus private mortgage insurance (PMI) when your down payment is below 20%. These last two pieces are often collected by the lender and held in an escrow account, then paid on your behalf when the bills come due.
Breaking Down the Amortization Formula
The part you can calculate yourself with pencil and paper is principal and interest. Lenders use a standard amortization formula to turn a loan amount, an annual interest rate, and a term into a fixed monthly payment:
M = P × [r(1+r)^n] ÷ [(1+r)^n − 1]
Here, M is the monthly payment, P is the principal you borrowed, r is the monthly interest rate (your annual rate divided by 12), and n is the total number of payments (for a 30-year loan, that's 360). This is the same math every mortgage calculator runs behind the scenes.
A Simple Worked Example
Let's say you borrow $300,000 on a 30-year fixed mortgage at 6% interest. Your monthly rate is 6% ÷ 12, or 0.005, and your payment count is 360. Plug those into the formula and you land at roughly $1,799 per month for principal and interest.
That first payment is telling. One month of interest on $300,000 at 6% is $1,500, so of that first $1,799, only about $299 goes toward principal. The interest share falls and the principal share grows with every payment that follows. This is why a small change in rate or a few years shaved off the term can move your total interest dramatically.
Adding Taxes, Insurance, and PMI on Top
Principal and interest are only part of the story. Property taxes are set by your county and vary widely by state and locality, while homeowners insurance depends on your home's value, location, and coverage choices. If your down payment is less than 20%, PMI adds a further monthly cost until you build enough equity to remove it.
To estimate your full PITI, you add those figures to the principal-and-interest payment. A common rule of thumb is to divide your annual property tax bill and your annual insurance premium each by 12, then add both monthly amounts to the loan payment — plus PMI if it applies. That's your all-in number.
Your loan payment is not your housing payment. Always budget for the full PITI figure, because taxes, insurance, and mortgage insurance can add hundreds of dollars to the amount that leaves your account each month.
How Escrow Fits In
Most lenders require an escrow account, also called an impound account, when your down payment is small or the loan is government-backed. Each month they add one-twelfth of your estimated annual taxes and insurance to your payment. When the tax bill or insurance premium comes due, the lender pays it from that account.
Escrow isn't a fee; it's a holding account. The lender typically keeps a cushion equal to a couple of months of escrow payments to absorb cost increases, which is why your closing statement often lists prepaid escrow items. The Consumer Financial Protection Bureau (CFPB) explains how escrow works and what your lender must tell you in your annual escrow statement, so your estimated and actual bills stay in balance.
Letting a Mortgage Calculator Do the Work
You don't need to hand-compute anything. A good mortgage calculator accepts your home price, down payment, interest rate, term, tax rate, insurance premium, and PMI, then returns the full PITI in seconds. What's more valuable is playing with the inputs:
- Change the down payment to see how much PMI disappears once you hit 20%.
- Shorten the term from 30 years to 15 and watch total interest drop.
- Bump the rate by half a point to feel how sensitive the payment is to pricing.
- Add a realistic tax estimate so the number matches your local market.
This kind of what-if modeling tells you more than a single quote ever will, because it shows the range of payments you might face depending on the choices you make at the closing table.
A Word of Caution on Estimates
Every calculation here is an estimate, not a guarantee. Your actual rate depends on your credit, down payment, loan type, and the market on the day you lock. Property taxes can be reassessed upward after purchase, and insurance premiums change from year to year. Use the calculator to set a realistic budget, then confirm the real numbers with your loan officer before you commit.
The goal isn't precision to the penny — it's understanding where your money goes each month and keeping that total somewhere your household can comfortably carry.