Introduction
Principal, Interest, Taxes, Insurance (PITI) refers to mortgage payments made by an individual. It includes payments made towards loan insurance premiums and property taxes (municipal taxes).
What is Principal, Interest, Taxes, Insurance (PITI)?
PITI is generally calculated on a monthly basis. PITI is preferred at 28% of the gross monthly income. It is a criterion for approval of mortgage loans. While the front end ratio is preferred at 28%, the back end ratio is preferred at 33%.
The front end ratio is calculated by dividing the loan PITI obligation with the gross income. The back end ratio is calculated by dividing the aggregate monthly obligations with the gross income.
In many cases, the insurance premiums and property taxes do not form part of the monthly obligations. These obligations are paid directly to the insurance company and municipal authorities.
