PITI: Your All-In Monthly Housing Cost

PITI stands for Principal, Interest, Taxes, and Insurance. Lenders look at PITI (plus HOA and PMI if applicable) to determine whether your monthly mortgage is affordable given your income and debts.

• Principal: The portion that reduces your loan balance.
• Interest: The finance charge paid to the lender.
• Taxes: Property taxes, often escrowed monthly.
• Insurance: Homeowners (and sometimes PMI until 20% equity).

APR: The True Cost of Borrowing

APR (Annual Percentage Rate) represents the yearly cost of your loan, including the interest rate plus certain fees (like origination or discount points). Two loans can have the same interest rate but different APRs—APR lets you compare apples-to-apples.

• Interest Rate → what determines the raw cost of financing.
• APR → interest + allowable fees spread over the loan term.
• Lower APR usually means lower total cost if you keep the loan for the full term.

When to Prioritize Each

• Focus on PITI when budgeting monthly cash flow and qualifying for a mortgage.
• Focus on APR when comparing lenders/loan options to minimize lifetime cost.

Example Scenario

Illustrative only; use our calculator for exact payments.

• Loan: $350,000, 30 years.
• Option A: 6.5% rate, APR 6.8% (higher fees).
• Option B: 6.625% rate, APR 6.7% (lower fees).

Even a slightly lower APR can save thousands over decades. But if Option B’s monthly PITI challenges your budget due to higher insurance/taxes/HOA, Option A might still be the practical choice. Balance both views.

How Taxes, Insurance & PMI Shift PITI

• Property Taxes: Vary by location; may rise over time.
• Homeowners Insurance: Can change after claims or policy updates.
• PMI: Drops off around 20% equity (or via refinance/appraisal).
• HOA: Adds dues that are not part of principal/interest.

Smart Shopping Checklist

1. Use our Mortgage Calculator to test different rates, down payments, and terms.
2. Request official Loan Estimates from multiple lenders; compare the APR lines.
3. Ask which fees are included in APR and what can change at closing.
4. Stress test PITI against real-world bills, repairs, and savings goals.

Key Terms

Discount Points: Upfront fees paid to lower the interest rate.
Escrow: Lender-managed account for taxes/insurance.
Amortization: How each payment splits between principal and interest over time.

Related: 15-Year vs 30-Year Mortgage · Budget for Homeownership · Mortgage Calculator