principal, interest, taxes, and insurance (PITI) definition

principal, interest, taxes, and insurance (PITI)

Four components of monthly housing cost that may be combined in a single monthly home mortgage installment. Lenders use PITI in two ways: (1) Before approving the loan: to compute the applicant's back end ratio and front end ratio to judge his or her capacity to payback the loan. (2) After approving the loan: to collect monthly mortgage amount (that covers principal and interest) plus an amount that covers 1/12th of property tax and property insurance premium, and is kept in escrow until due for payment.

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