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Real estate math guide

Mortgage payment and PITI

The most common PITI mistake happens before the addition: an annual bill gets mixed with a monthly payment. Put every amount on the same monthly basis, then check what the question actually includes. A lender's bill, a classroom PITI total and a qualifying housing expense can be different amounts.

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The short answer

PITI means principal, interest, taxes and insurance. In this page's narrow classroom calculations, monthly PITI = monthly P&I + annual property taxes / 12 + annual homeowner's insurance / 12. Use an already-monthly amount directly. Find P&I from the supplied payment, a supplied factor or an appropriate rate-and-term calculation. Add other required costs when the problem defines a broader total, without counting the same escrowed tax or insurance twice. A lender's monthly bill may omit costs paid directly; fixed-rate P&I does not freeze taxes, premiums or escrow adjustments.

The PSI outline effective June 24, 2026 names PITI estimates given loan rate and term at national XI.A.5. The entire Real Estate Calculations domain receives 7% of the 100 scored national broker questions, or 7 questions; this page has no separate quota. The formula examples assume equal monthly, end-of-period payments on a fixed, fully amortizing loan. They do not describe every loan, permitted exam calculator or actual qualifying payment. These are original exercises, not PSI questions, a mortgage quote, an approval or a validated readiness score.

Put the payment on one monthly basis

  1. Name the requested answer: P&I alone, the problem's PITI definition, a broader housing total, the amount paid to the servicer or a missing component. Do not silently switch between them.
  2. Find monthly P&I. Use the supplied payment directly. For a factor stated per $1,000 of loan, P&I = loan / 1,000 x factor. Do not read the factor as a percentage or a current rate quote.
  3. For the stated fixed, fully amortizing monthly model, M = L x r / [1 - (1 + r)^(-n)]. L is the financed loan balance, r is the annual note rate expressed as a decimal divided by 12, and n is the number of monthly payments. At a zero rate, use M = L / n instead.
  4. Convert each annual tax and annual premium to a monthly allocation by dividing by 12. An amount already stated monthly stays monthly. A bill covering a different period needs the matching conversion.
  5. Add P&I, monthly property tax and monthly homeowner's insurance for this page's narrow PITI examples. If the problem defines insurance or the requested total more broadly, follow that definition.
  6. For a broader total, include the stated applicable mortgage insurance, flood coverage, dues or other required housing items once. An escrow collection is a way to fund costs, not a second copy of the same costs.
  7. Keep a first premium, prepaid interest and initial escrow funding in their appropriate upfront categories. They are not extra full amounts to add to every monthly payment. Monthly funding for a later bill can still be required.
  8. Check units and rounding. Use the supplied factor as stated; for a formula calculation retain precision until the requested final result. Then explain which total you calculated and which other costs remain outside it.
PITI formulas and period checks
FindCalculationCondition or unit
Monthly taxAnnual tax / 12A monthly allocation, not the county's billing schedule
Monthly homeowner's insuranceAnnual premium / 12Use the problem's coverage and period
Narrow monthly PITIP&I + monthly tax + monthly homeowner's insuranceThis page's stated convention
P&I from a factorLoan / 1,000 x factorFactor is a monthly dollar payment per $1,000
Loan from a factorP&I / factor x 1,000Invert the same supplied factor
Monthly model rateAnnual note-rate decimal / 126% becomes 0.06 / 12 = 0.005
Level monthly P&IL x r / [1 - (1 + r)^(-n)]Fixed fully amortizing monthly model; r > 0
Zero-rate monthly paymentL / nHypothetical zero rate, equal payments
Missing monthly P&IPITI - monthly tax - monthly homeowner's insuranceOnly the components in that stated total
Broader housing totalStated applicable components added onceRead the actual definition and qualifying rules
Covered cushion ceilingEstimated annual escrow disbursements / 6Maximum subject to lower limits; not mandatory
Cash at closingSeparate upfront analysisDo not add the full initial deposit to every month

The distinctions that matter

PITI: key distinctions
DistinctionHow it worksWhat to notice
P&I and PITIP&I is the principal-and-interest payment. This page's narrow PITI examples add monthly property taxes and homeowner's insurance. The original loan amount is not an extra monthly payment.Read the requested total before adding.
Annual bills and monthly allocationsAn annual tax of $7,200 contributes $600 per month; an annual premium of $1,800 contributes $150. This converts the period, not the actual bill or legal due date.Do not divide an already-monthly amount by 12 again.
A payment factor and an interest rateA factor of $6.32 per $1,000 means multiply the loan's number of thousands by $6.32. It is not an annual rate of 6.32%. A supplied rounded factor can differ from an unrounded formula result.Use the factor and units the question supplies.
The note rate and APRThe monthly loan formula here uses the annual note interest rate under its stated model, not APR. APR measures a broader annual cost using its applicable charge and timing rules.For a 6% annual note rate, r = 0.06 / 12 = 0.005.
A fully amortizing payment and interest aloneFor the stated positive-rate model, the level payment covers monthly interest and principal reduction. Multiplying the opening balance by r gives that month's interest, not the complete level P&I payment.Do not replace a 30-year amortizing payment with interest-only math.
Homeowner's insurance and mortgage insuranceThey are separate payment components. The narrow examples use the stated homeowner's premium; a broader total or actual disclosure can also include applicable mortgage insurance and other coverage.Do not drop a required cost merely because an acronym is short.
Classroom PITI and Fannie Mae PITIAFannie Mae's subject-property housing expense includes its listed applicable insurance, taxes, dues, assessments, ground rent, co-op fees and subordinate payments, with qualifications. It is a particular qualifying definition, not a universal formula for every loan.A principal-residence qualifying payment can differ from an advertised P&I payment.
The lender bill and the housing budgetWithout escrow, the borrower can pay taxes and insurance directly. Dues may also be paid separately. A smaller servicer payment does not make those costs disappear from the relevant budget or qualifying total.No escrow does not mean no tax or insurance expense.
Escrow collection and the costs it fundsAn escrow line can already include the tax and insurance being added. Adding that line and the same underlying costs again double counts them. Actual escrow can also involve adjustments.Identify what is inside the stated collection.
Projected payment and taxes, insurance and assessmentsThe Loan Estimate's payment calculation adds P&I, applicable mortgage insurance and escrow. Its separate taxes, insurance and assessments amount can include escrowed and non-escrowed costs.Do not add that entire overlapping amount to the payment again.
An initial deposit and recurring fundingPrepaids and initial escrow deposits are upfront amounts with their own periods and purposes. A monthly tax or premium allocation is not the same full upfront payment repeated each month.A first premium at closing does not by itself remove future escrow-funding duties.
A cushion and a mandatory extra chargeFor the covered escrow rule, the cushion ceiling is generally one-sixth of estimated annual escrow disbursements, subject to lower applicable limits. The rule does not require a cushion, and the initial account funding also depends on bill timing.A two-month ceiling is not a mandatory two-month fee or the entire initial deposit.
A shortage and a deficiencyA shortage is a balance below the target at analysis. A deficiency is a negative balance. These are different measures and can coexist; their repayment provisions are not identical.A positive account balance can still be short of its target.
Fixed P&I and a changing totalUnder the stated regular fixed, fully amortizing model, scheduled P&I stays level while its principal-and-interest allocation changes. Taxes, premiums, applicable mortgage insurance and escrow adjustments can change the broader amount.Fixed rate does not freeze every homeownership cost.

Work through the facts

Calculate basic monthly PITI

Monthly principal and interest are $1,800. Annual property taxes are $7,200 and annual homeowner's insurance is $1,800. What is PITI?

  1. Monthly taxes are $7,200 / 12 = $600.
  2. Monthly insurance is $1,800 / 12 = $150.
  3. $1,800 + $600 + $150 = $2,550.

Answer: Monthly PITI is $2,550.

Build a broader housing total

Basic PITI is $2,550. Monthly mortgage insurance is $125 and association dues are $90. What broader monthly housing expense does the problem produce?

  1. Keep narrow PITI at $2,550.
  2. Additional stated housing items total $125 + $90 = $215.
  3. $2,550 + $215 = $2,765.

Answer: The broader monthly housing expense is $2,765.

Recover the maximum P&I component

A simplified PITI ceiling is $2,800. Monthly taxes are $650 and monthly homeowner's insurance is $175. What P&I fits the ceiling?

  1. Known nonloan PITI components total $650 + $175 = $825.
  2. $2,800 - $825 = $1,975.
  3. No other housing items are included in the stated narrow total.
  4. This is a mathematical ceiling for the stated narrow components, not a lender approval or an all-cost affordability determination.

Answer: The maximum monthly P&I component is $1,975.

Use a payment factor

A supplied table gives a monthly P&I factor of $6.32 per $1,000. The loan is $320,000, annual taxes are $8,400, and annual insurance is $2,400. What is PITI?

  1. P&I is 320 x $6.32 = $2,022.40.
  2. Monthly taxes are $700 and monthly insurance is $200.
  3. $2,022.40 + $700 + $200 = $2,922.40.
  4. Use the supplied factor as stated; do not infer that 6.32 is the interest rate or substitute a newly rounded factor.

Answer: Monthly PITI is $2,922.40.

Recover a loan from a supplied factor

Monthly P&I is $2,212 and the supplied factor is $5.53 per $1,000. What loan amount produced the payment?

  1. $2,212 / $5.53 = 400 units of $1,000.
  2. 400 x $1,000 = $400,000.
  3. Check: 400 x $5.53 = $2,212.
  4. This is the amount implied by the supplied factor and payment, not a verified available loan offer.

Answer: The loan amount is $400,000.

Separate a monthly shortage repayment

Base PITI is $2,400 and a stated escrow shortage repayment adds $75 monthly for 12 months. What are the temporary total and base PITI?

  1. The shortage repayment is an escrow adjustment, not a new PITI category.
  2. Temporary amount collected is $2,400 + $75 = $2,475.
  3. Base PITI remains $2,400 under the stated facts.
  4. The $75 for 12 months is stipulated, not a universal legal repayment schedule for every shortage or deficiency.

Answer: The temporary total is $2,475; base PITI is $2,400.

Calculate P&I from rate and term

For a hypothetical fixed, fully amortizing model, borrow $100,000 at a 6% annual note rate with 360 equal monthly end-of-period payments. Annual taxes are $2,400 and annual homeowner's insurance is $1,200. Assume no other costs or adjustments.

  1. r = 0.06 / 12 = 0.005 and n = 30 x 12 = 360.
  2. M = 100,000 x 0.005 / [1 - (1.005)^(-360)] = approximately $599.550525 before rounding.
  3. Monthly tax is $200 and homeowner's insurance $100. Retaining precision until the final result gives narrow PITI of $899.55 rounded to cents.

Answer: P&I is $599.55 and narrow PITI $899.55 as rounded instructional results, not a lender quote or an actual cent-rounded servicing schedule.

Count the escrowed costs once

P&I is $1,800 monthly. A $750 monthly escrow collection consists only of $600 property tax and $150 homeowner's insurance, with no shortage, other items or adjustments.

  1. The escrow collection already includes the stated $600 and $150.
  2. Narrow PITI is $1,800 + $750 = $2,550.
  3. Adding $750 and then another $600 and $150 would double count those same costs.

Answer: The stipulated narrow PITI is $2,550, not $3,300.

Separate the lender bill from directly paid costs

For a simplified Loan Estimate example, monthly P&I is $2,000, mortgage insurance $100 and escrow $500. Assume escrow consists only of $400 property tax and $100 homeowner's insurance. The $700 monthly tax/insurance/assessment amount includes that same $500 and $200 HOA dues paid directly. No other costs are included in this exercise.

  1. The payment rows total $2,000 + $100 + $500 = $2,600 sent to the servicer.
  2. Only the $200 outside escrow remains to be added for the listed housing costs: $2,600 + $200 = $2,800. Do not add the whole overlapping $700 again.
  3. Under this page's narrow definition, PITI is $2,000 + $400 + $100 = $2,500. The $100 mortgage insurance and $200 dues account for the difference from $2,800.

Answer: Lender-payment rows: $2,600. Listed housing costs: $2,800. Narrow PITI under the stipulated components: $2,500. These are different labeled totals, not an actual form or loan approval.

Use the zero-rate case instead of dividing by zero

A purely hypothetical $24,000 loan has a zero note rate, no other costs and 120 equal monthly end-of-period payments. The question asks only for the loan payment, not PITI.

  1. The positive-rate expression cannot be evaluated directly with a zero denominator.
  2. At zero interest, equal principal payments are $24,000 / 120 = $200.
  3. No tax, insurance or broader housing costs were supplied. Do not silently call $200 PITI or a verified loan offer.

Answer: The hypothetical monthly loan payment is $200; a PITI or broader housing total would need its own cost facts.

Mistakes to avoid

  • Adding annual bills to a monthly payment Convert each annual amount to its monthly allocation first.
  • Dividing a monthly amount a second time Keep an already-monthly amount in the same monthly units.
  • Adding the loan balance to each payment Use the scheduled P&I, which already contains the principal-reduction component.
  • Treating a factor as an interest rate A supplied dollar payment per $1,000 has different units from an annual percentage.
  • Using APR as the note rate Use the annual note rate for the stated monthly model; APR has a different purpose.
  • Calling monthly interest the complete amortizing payment A fully amortizing payment also pays down principal under the stated model.
  • Using an acronym to omit required costs Follow the question's definition and the applicable disclosure or qualifying rules.
  • Counting escrow and its taxes twice Inspect which underlying items the collection already funds.
  • Treating no escrow as no housing cost Budget for the taxes, premiums and dues paid separately as applicable.
  • Making a cushion a mandatory fee The covered rule limits the cushion and permits a lower cushion or none.
  • Repeating an upfront premium every month Use the correct coverage period and separate future escrow funding.
  • Turning an exercise ceiling into a loan approval The mathematical cap and an actual underwriting decision are different analyses.

Check your understanding

These are original teaching questions, not recalled or predicted PSI questions. Answer first, then explain why the other choices fail.

1. Monthly P&I is $1,650, annual taxes are $6,600, and annual homeowner's insurance is $1,500. What is PITI?

  1. $9,750
  2. $1,800
  3. $2,200
  4. $2,325
Show answer and explanation

Answer: D. $2,325

$1,650 + ($6,600 / 12) + ($1,500 / 12) = $1,650 + $550 + $125 = $2,325.

2. Annual property taxes are $9,000. What monthly amount enters a simplified PITI calculation?

  1. $75
  2. $750
  3. $108,000
  4. $9,000
Show answer and explanation

Answer: B. $750

$9,000 / 12 = $750 per month.

3. PITI is $2,700, monthly taxes are $600, and monthly homeowner's insurance is $150. What is P&I?

  1. $750
  2. $1,950
  3. $3,450
  4. $2,100
Show answer and explanation

Answer: B. $1,950

$2,700 - $600 - $150 = $1,950.

4. Which item is outside narrow PITI but may enter a broader qualifying housing expense?

  1. Interest
  2. Principal
  3. HOA dues
  4. Property taxes
Show answer and explanation

Answer: C. HOA dues

Association dues are not one of the four PITI letters but can be included in PITIA or total housing expense.

5. Why can the total payment change on a fixed-rate mortgage?

  1. Taxes, insurance, and escrow adjustments can change
  2. An escrow adjustment is automatically additional loan principal
  3. Every property-tax increase automatically changes the fixed note rate
  4. A fixed note rate necessarily resets every month
Show answer and explanation

Answer: A. Taxes, insurance, and escrow adjustments can change

The fixed note rate does not freeze property taxes, premiums or the escrow analysis. In the stated regular fully amortizing model, scheduled P&I can stay level while the broader collection changes. An escrow adjustment is not automatically a change to the note rate or principal.

6. A loan is $320,000 and the supplied monthly P&I factor is $6.32 per $1,000. What is P&I?

  1. $6.32
  2. $2,022,400
  3. $2,922.40
  4. $2,022.40
Show answer and explanation

Answer: D. $2,022.40

The loan contains 320 units of $1,000. Multiply 320 by $6.32. The supplied factor is not an annual interest rate or a current offer.

7. Using $2,022.40 P&I, $8,400 annual taxes and $2,400 annual homeowner's insurance, what is narrow monthly PITI?

  1. $12,822.40
  2. $2,722.40
  3. $2,922.40
  4. $2,222.40
Show answer and explanation

Answer: C. $2,922.40

Taxes contribute $700 and insurance $200 each month. $2,022.40 + $700 + $200 = $2,922.40.

8. P&I is $2,212 and the supplied monthly factor is $5.53 per $1,000. What loan amount does that factor imply?

  1. $12,232.36
  2. $400,000
  3. $2,212,000
  4. $400
Show answer and explanation

Answer: B. $400,000

$2,212 / $5.53 = 400 units of $1,000, giving $400,000. This reverses the supplied factor, not an actual approval decision.

9. Base PITI is $2,400 and a stated temporary shortage repayment is $75 monthly for 12 months, with no other changes. What is collected monthly during that period?

  1. $2,475
  2. $2,400
  3. $2,325
  4. $3,300
Show answer and explanation

Answer: A. $2,475

Add the stated $75 adjustment once. Base PITI remains $2,400 under the hypothetical; 12 months is supplied, not a universal rule for every escrow problem.

10. A borrower pays taxes and homeowner's insurance directly because the loan has no escrow account. What follows?

  1. Every lender bill must already include them
  2. Those costs no longer exist
  3. They automatically become principal
  4. They still belong in the applicable housing-cost calculation even if outside the lender bill
Show answer and explanation

Answer: D. They still belong in the applicable housing-cost calculation even if outside the lender bill

Collection method does not erase the underlying costs. Identify the requested total and add separately paid applicable items once.

11. P&I is $1,800. A stated $750 monthly escrow collection consists only of $600 tax and $150 homeowner's insurance, with no adjustment or other items. What is narrow monthly PITI?

  1. $2,550
  2. $1,800
  3. $2,400
  4. $3,300
Show answer and explanation

Answer: A. $2,550

The $750 already contains those taxes and insurance. Add it once to $1,800 rather than adding another $600 and $150.

12. For the stated monthly model, what is r for a 6% annual note rate?

  1. 6
  2. 0.5
  3. 0.005
  4. 0.06
Show answer and explanation

Answer: C. 0.005

Convert 6% to 0.06, then divide by 12. Do not use 6 as a decimal rate or replace the note rate with APR.

13. For the stated fixed, fully amortizing monthly model, a hypothetical $100,000 loan has a 6% annual note rate and 360 payments. What is P&I rounded to cents?

  1. $6,000.00
  2. $599.55
  3. $277.78
  4. $500.00
Show answer and explanation

Answer: B. $599.55

M = 100,000 x 0.005 / [1 - (1.005)^(-360)] = approximately $599.550525 before rounding. $500 is only the opening month's interest under this model, not the complete amortizing payment.

14. Annual homeowner's insurance is $1,800. What monthly allocation enters this page's narrow PITI example?

  1. $15
  2. $1,800
  3. $21,600
  4. $150
Show answer and explanation

Answer: D. $150

$1,800 / 12 = $150. This allocates the supplied annual cost, without claiming a particular policy, escrow schedule or quote.

15. Assume the covered escrow rule applies, estimated annual disbursements are $9,000, and no law or loan document imposes a lower limit. What is the one-sixth cushion ceiling?

  1. $18,000
  2. $1,500
  3. $750
  4. $9,000
Show answer and explanation

Answer: B. $1,500

$9,000 / 6 = $1,500. This is a maximum cushion, not a required fee or the full initial escrow deposit; the rule does not require any cushion.

16. At analysis, a hypothetical escrow account has a $1,000 target and an $800 positive balance. What is the shortage?

  1. $800
  2. $200
  3. $1,800
  4. $1,000
Show answer and explanation

Answer: B. $200

The account is $200 below its target. A positive balance is not a deficiency, which means a negative balance. Actual analysis and repayment requirements need the applicable facts and rules.

17. In a simplified Loan Estimate example, P&I is $2,000, mortgage insurance $100 and escrow $500. The $700 tax/insurance/assessment total consists of that same $500 plus $200 HOA dues paid directly. What is the total of the specified monthly housing costs?

  1. $3,300
  2. $2,600
  3. $2,700
  4. $2,800
Show answer and explanation

Answer: D. $2,800

The lender-payment rows sum to $2,600. Add only the $200 paid directly, producing $2,800 for the listed costs. Adding the entire overlapping $700 again would double count $500. This is a simplified exercise, not a completed official disclosure or an all-cost ownership budget.

18. A hypothetical zero-interest loan of $24,000 is repaid in 120 equal monthly payments with no other costs. What is each payment?

  1. $0
  2. $2,000
  3. $200
  4. $24,000
Show answer and explanation

Answer: C. $200

At a zero rate, M = L / n = $24,000 / 120 = $200. The positive-rate formula would divide by zero if used without its limiting case; this is hypothetical math, not an available loan offer.

19. Does the covered Regulation X rule require every escrow account to maintain the maximum two-month cushion?

  1. Yes, it is a mandatory fee charged every month
  2. No; it limits the cushion and permits a smaller cushion or none, with lower applicable limits respected
  3. Yes, even if applicable law or the loan document requires a lower limit
  4. No, because estimated escrow disbursements can never affect the account
Show answer and explanation

Answer: B. No; it limits the cushion and permits a smaller cushion or none, with lower applicable limits respected

The maximum cushion is not a mandatory charge or the entire initial deposit. The actual analysis, bill timing, applicable law and loan-document limits matter.

20. Which rate input belongs in the fixed monthly loan model used here?

  1. The annual note-rate decimal divided by 12, under the stated monthly assumptions
  2. The advertised APR treated as every note's contractual rate
  3. The annual note-rate decimal multiplied by 12
  4. The annual note percentage entered as 6 rather than 0.06
Show answer and explanation

Answer: A. The annual note-rate decimal divided by 12, under the stated monthly assumptions

Use r = 0.06 / 12 = 0.005 for the hypothetical 6% note rate. APR is a different annual credit-cost measure; this does not approve an actual interest calculation for a different payment structure.

Common questions

What does PITI stand for?

Principal, interest, taxes and insurance. The CFPB describes these as four basic mortgage-payment elements. This page declares a narrow classroom convention using the stated property taxes and homeowner's insurance. An actual question, disclosure or qualifying rule can define the included insurance and other housing costs more broadly. Follow that definition rather than omitting a required item merely because of the acronym.

What is the monthly PITI formula?

For this page's narrow examples, add monthly P&I, annual property tax divided by 12 and annual homeowner's insurance divided by 12. Use amounts already stated monthly without dividing again. If a bill covers a different period, convert that period appropriately. Then add any other components required by the requested broader total, once each, with the total clearly labeled.

How do I turn an annual property-tax bill into a monthly amount?

Divide the stated annual amount by 12 for the simplified monthly allocation. $7,200 a year becomes $600 a month. This does not change the taxing authority's installment schedule or calculate a new tax assessment. An actual qualifying estimate can require projected taxes rather than simply reusing a historic bill. Use the facts and applicable rules for the question.

How do I allocate annual homeowner's insurance?

Divide the stated annual premium by 12: $1,800 becomes $150 monthly. Use the coverage period and amount supplied rather than a national average or guessed quote. A full premium paid at closing is not an extra full premium to add every month; future recurring escrow funding may still be required. The actual policy and account determine payment timing.

Is mortgage insurance part of PITI?

It is a separate component from homeowner's insurance. This page's narrow PITI examples exclude it unless the problem expands the definition; a broader housing expense and the Loan Estimate's payment calculation can include it when applicable. Fannie Mae includes applicable mortgage insurance in its defined PITIA. Do not remove a required cost from an actual total by relying only on four letters.

Are HOA dues included in PITI?

They are outside the narrow four-component convention used here, but can be required in a broader housing or qualifying total. The borrower often pays them separately from the servicer bill. Fannie Mae's particular subject-property PITIA includes applicable association dues under its stated conditions. A separate payment can still be a real expense; identify the requested total and avoid duplication.

Is PITI the same as every total monthly housing expense?

No. Fannie Mae's defined PITIA can include applicable property, flood and mortgage insurance, taxes, ground rent, assessments, association dues, co-op fees and subordinate-financing payments, with qualifications. A principal-residence qualifying payment follows the applicable qualifying-payment rule, which need not equal an advertised P&I amount. A personal household budget may include still other costs. None of those definitions is interchangeable with every lender bill.

Does escrow create another tax or insurance expense?

Escrow is a collection and disbursement arrangement for covered items, rather than a second copy of the same tax or premium. A collection can also reflect the account's analysis and adjustments. If $750 already consists of $600 tax and $150 insurance, add $750 once, not $750 plus another $600 and $150. Identify the actual items and periods before adding.

Why can the payment change on a fixed-rate mortgage?

In the stated fixed, fully amortizing monthly model, scheduled P&I stays level while the principal and interest shares change. Taxes, insurance premiums, applicable mortgage insurance and escrow adjustments can change a broader amount. Other loan structures can have different payment features. Fixed rate does not promise that every housing cost or servicer collection will remain unchanged.

Are these official Illinois exam questions or mortgage quotes?

These are original exercises aligned to the identified PSI outline, not secure exam questions or validated readiness scores. The rates, taxes, premiums, factors and payments are stipulated or hypothetical. The examples are not current offers, underwriting approvals, private escrow analyses or guarantees of an actual payment. They teach the period, component and formula checks needed to explain an answer.

How do I calculate P&I from a rate and term?

For the stated fixed, fully amortizing model with equal monthly end-of-period payments, use M = L x r / [1 - (1 + r)^(-n)]. L is the financed balance, r the annual note-rate decimal divided by 12, and n the number of monthly payments. At 6% over 30 years, r is 0.005 and n is 360. Retain precision before rounding the final result. This is not a formula for every ARM, balloon, interest-only, daily-accrual or irregular-payment loan.

How does a payment-per-$1,000 factor work?

Divide the loan amount by $1,000, then multiply by the supplied monthly factor. A $320,000 loan and a $6.32 factor give 320 x $6.32 = $2,022.40 P&I. Reverse it with P&I / factor x $1,000. The factor is not the note interest rate, and a supplied rounded factor can differ from an unrounded formula. Use the precision the exercise provides.

If I have no escrow, can I leave taxes and insurance out?

They may be absent from the amount sent to the servicer, but they remain costs paid directly. Include them in the relevant PITI, housing budget or qualifying calculation as defined. Dues or other applicable costs may also be paid separately. A smaller lender bill does not prove that the loan or home has a smaller all-in housing cost.

Is a two-month escrow cushion always required?

No. For the covered Regulation X rule, the cushion ceiling is generally one-sixth of estimated annual escrow disbursements, with lower applicable law or loan-document limits respected. The rule permits a smaller cushion or none. Initial account funding also depends on the timing of bills and the required analysis; it is not universally just two months. A cushion balance is not the same thing as a recurring new fee.

Should I add the entire Taxes, Insurance & Assessments amount to the Loan Estimate payment?

Usually that would double count items. The payment calculation adds P&I, applicable mortgage insurance and escrow. The separate tax, insurance and assessment amount can include both escrowed and non-escrowed costs; check the flags and amounts. In the example, $2,600 already includes $500 of the $700. Only $200 remains to be paid directly, giving $2,800 for the listed monthly costs. Other ownership costs can still exist. This is not an instruction to alter an actual disclosure.

What happens to the payment formula at a zero interest rate?

For a hypothetical zero-rate loan with a positive number of equal monthly payments and no other costs, use M = L / n. A $24,000 balance over 120 payments gives $200 each. The positive-rate formula has a zero denominator at r = 0 and must not be evaluated directly there. A zero note rate is not a promise of an available loan, eligibility or the absence of every possible fee in a real transaction.

Can an escrow account have both a shortage and a deficiency?

Yes. A shortage measures the gap below the target balance; a deficiency means a negative balance. If the target is $1,000 and the balance is negative $100, the shortage is $1,100 and the deficiency is $100. They describe overlapping aspects of the account, not two charges to add together. A positive $800 balance against a $1,000 target has a $200 shortage without a deficiency. The actual analysis and applicable repayment provisions still govern.

Can a qualification calculation always use the last tax bill or a hoped-for tax reduction?

No universal rule permits that. Fannie Mae's identified subject-property guidance bases its tax calculation on no less than the current assessed value and requires reasonable projections in its specified purchase, construction and reassessment situations. It does not allow taxes to be reduced merely because an appeal is pending and unapproved. Other programs and the actual property require their own applicable rules. Dividing an exam's stated annual tax by 12 is a different task from verifying a real qualifying tax estimate.

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Official sources and scope

Reviewed October 28, 2026 against the PSI outline and identified current CFPB and Fannie Mae materials, with earlier actual primary readings explicitly reused. The narrow PITI convention is declared for these examples; actual forms and qualifying definitions control their own totals. The rate-and-term equation and numerical examples are original mathematical work checked with exact fractions, a present-value identity and an unrounded amortization recurrence. Rates, premiums, taxes, factors and payments are hypothetical or supplied exercise facts, not current offers. No private loan, escrow analysis or underwriting decision is approved.

This is exam preparation, not advice for a specific transaction. State law and the applicable facts control. Our editorial and corrections process explains how to report an issue.

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