PITI Payment

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PITI refers to a mortgage payment that includes Principal, Interest, Taxes, and Insurance. The lender collecting your PITI mortgage payment takes the principal and interest part (P&I) to repay your mortgage and puts the taxes and insurance part (T&I) into an escrow account. That escrow account will have accumulated enough in it over a year to pay your property taxes and your homeowner’s insurance premium.

PITI Monthly Payment Defined

The taxes and insurance part of your mortgage payment does not go to the lender even though they collect it and hold it until it is due and payable. For example, if your property taxes are $2500 for a year, then you pay $208.33 ($2500 divided by 12 months) a month. That is the (T) portion of PITI. The lender puts $208.33 into your escrow and at the end of the year you have $2500. That money is paid to your county for property taxes. The lender does not keep any part of that.

If you have a fixed rate mortgage, your P&I amount will not change. However, the T&I amount does change. Your property taxes go up or down when your property is reassessed. You insurance premium can also change. Be aware and start planning ahead when you find either of these are about to go up. Lenders are not always on top of escrows so you may be going in the hole every month until they catch it.

If you have been going in the hole every month because the lender hasn’t caught the change, your escrow account will have a shortfall in it. If the lender asks for money to clean up a shortfall in your escrow account, the money is not going to them. They realized your taxes or insurance increased and they need to replace the shortfall and then permanently increase your T&I amount so a shortfall is not created every month.

The best thing to do is pay attention to any property tax information or homeowner’s insurance changes sent to you. Don’t wait for the lender to change your taxes or insurance amount. Start sending in the correct T&I amount. Divide the tax amount or insurance premium amount by 12 and that is the new monthly T or I amount.