PITI

Principal, Interest, Taxes, and Insurance — the four components of a standard mortgage payment.

Definition

PITI is the shorthand every lender and landlord uses for a full monthly mortgage payment. Principal is the portion that pays down the loan balance, interest is the cost of borrowing, taxes is the property tax escrow that the lender collects monthly and pays annually on your behalf, and insurance is the hazard insurance escrow. On rental properties, PITI is the number you subtract from NOI to get cash flow. Missing one of the four components, especially the tax or insurance escrow, is the most common source of cash flow underwriting errors. New investors often calculate a mortgage payment using only principal and interest and then discover their actual PITI is 20 to 40% higher because of escrow. In high tax or high insurance states (Texas, Florida, Louisiana), the escrow portion can exceed the principal and interest combined. Always use full PITI when underwriting a deal, and always verify the current property tax bill and insurance quote rather than using the seller's old numbers. Insurance quotes in particular have jumped dramatically in Florida and coastal areas over the last few years.

Formula

PITI = Principal + Interest + Property Tax Escrow + Insurance Escrow

Example

Loan of $150,000 at 7% fixed for 30 years. Principal + Interest = $998. Monthly property tax = $250. Monthly insurance = $125. PITI = 998 + 250 + 125 = $1,373.

Frequently asked

What does PITI stand for?

Principal, Interest, Taxes, and Insurance. The four components of a standard mortgage payment.

Should I include PITI in my rental cash flow calculation?

Yes, always use full PITI. Using only principal and interest will overstate your cash flow by the tax and insurance escrow amounts.

Are PITI components tax deductible?

Interest, taxes, and insurance portions are deductible on Schedule E. Principal paydown is not deductible because it builds equity, not expense.

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