What is P.I.T.I. ?
August 2nd, 2009 Categories: Credit & Financing, Diamond Dwellings, First Time Home Buyers
NO! You’re thinking of a Greek pocket bread for sandwiches.
How Can PITI Figure Into Your Monthly Budget?
If you are in the real estate business, you are probably familiar with the acronym: P.I.T.I.
This is one acronym that first-time home buyer should know about and it’s a handy, simple group of letters — that could save you money and help with your monthly budget planning concerning your house payment.
P.I.T.I = Principal, Interest, Taxes and Insurance.
Let’s examine each of the four areas separately.
Principal: This is the total amount of money you will owe the bank for your loan. The “principal balance” of your loan is divided over the life of your loan AND there will be a monthly amount of principal that you will be obligated to pay back.
Interest: This is the “fee” . . . the interest amount that you agreed to pay the bank for the loan. If you have a 4.75% interest rate, you will have this amount calculated as a per monthly amount.
NOTE: I might as well add that the bank ‘amortizes’ your loan. The principal balance is not really being reduced the first seven, or so, years of the life of your loan (if you have a 30 year fixed). You are paying the mortgage per month and the majority of that amount will be INTEREST. The banks have set this system up by design. There has been study after study done that buyers live in a home, on average, 5 to 7 years. So . . . the banks make their money upfront with the interest on the loan.
Taxes: Taxes are the taxes due each year on your property. These taxes can be set up to be paid with your mortgage, and the yearly amount is divided by 12 months and can be added to your monthly mortgage payment. You may find that it is more convenient to have your taxes included in your monthly payment.
Insurance: This hazard insurance for your property. Do NOT confuse this “insurance” as Mortgage Insurance, which is a different type of insurance that lenders require to insure your mortgage.
The Sum Total will be your P.I.T.I. monthly payment.
Be sure to ask your Realtor, mortgage professional, or banker if the monthly payment they’re quoting you is P.I.T.I . . . the total amount of what you will be obligated to pay each month. They could be quoting the P&I (Principal and Interest) and NOT include the Taxes and Insurance.
Call or E-mail: Rick Frissell, Agent- Brandons Beautiful Homes
813-340-6828
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