This equation computes a total monthly payment a homeowner might see if they finance a loan with less than 20% downpayment. In most cases the mortgage company requires the loan to carry mortgage insurance if the down-payment is less than 20% of the original Principal. This total monthly payment also includes both the amount due to homeowner's insurance (also required by the mortgage company and typically escrowed and included in monthly mortgage payments) and the amount due to property taxes (also typically escrowed and included in monthly mortgage payments).
PITI is an acronym for Principal, Interest, Taxes and Insurance. This is a commonly used equation in calculating the monthly loan payment on a mortgage loan, including taxes
and insurance. From the equation, the following variable represent:
Example: Monthly PITI Plus Mortgage Insurance payment for 30 year fixed-rate loan, with a principal of $250,000, a yearly interest rate of 6.5%, annual taxes of $1400, annual homeowners insurance of $500, and a mortgage insurance rate of 0.5% is :
r = (6.5 / 100) / 12 = .005416667
P = 250,000
N = (30 x 12) = 360
T = $1400
i = $500
MI = 0.005
From the equation, the he Monthly Payment will be $1842.67