NY Real Estate Prep

PITI and the monthly interest calculation

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PITI = Principal + Interest + Taxes + Insurance. How to compute first-month interest on the NY exam.

PITI = Principal + Interest + Taxes + Insurance
Interest = Loan Balance × Rate × Time

How to solve it, step by step

  1. Take the outstanding loan balance.
  2. Multiply by the annual interest rate.
  3. Divide by 12 for one month’s interest.
  4. Subtract that interest from the total payment to find the principal portion.

Worked examples

A $300,000 loan at 6% annually. First month’s interest = $300,000 × 0.06 ÷ 12 = $1,500.
Splitting a payment: if the monthly principal-and-interest payment is $1,800 and interest is $1,500, then $1,800 − $1,500 = $300 goes to principal in month one.

What the NY exam actually asks

Amortisation means interest is charged on the remaining balance, so the interest portion shrinks every month while the payment stays level. The exam usually asks only for the first month.

Try one yourself

A $250,000 loan carries a 7.2% annual rate. What is the first month’s interest?

Show the answer

$1,500. $250,000 × 0.072 = $18,000 a year, divided by 12 = $1,500 for the first month.

Common mistakes

  • Using the annual rate without dividing by 12.
  • Assuming the split between principal and interest stays constant. It changes every month.
  • Including taxes and insurance when the question asked only for principal and interest.

Questions students ask

Why does the interest portion fall each month?

Interest is charged on the remaining balance. As principal is repaid, the balance drops, so less interest accrues.

What does PITI stand for?

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

Related formulas

Practise this. The free 10-question math quiz drills these formulas, and the free timed practice exam puts them under exam conditions.

The financing words behind this formula are defined in the financing terms glossary.

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