- Official section
- National XI.D: PITI, Equity, LTV, Points, and Origination Fees
- Broker weight
- 7% of the national broker portion
- Expected scored items
- Real Estate Math accounts for about 7 of 100 items
Calculations topic guide
PITI, equity, LTV, points, and origination fees
These formulas use many of the same numbers, but they answer different questions. PITI measures monthly housing payment, equity measures ownership value, LTV measures leverage, and points or fees measure an upfront loan cost.
Last updated: August 1, 2026
What calculation do you need to make?
Short answer: PITI equals monthly principal and interest plus monthly property taxes and homeowners insurance. Equity equals current value minus secured debt. LTV equals loan amount divided by the required value base. One point equals 1% of the loan amount. A stated origination percentage is also multiplied by the loan amount, but its purpose differs from a discount point.
The national outline effective June 24, 2026 tests PITI, equity, LTV, points, and origination fees. Exam questions usually provide the principal-and-interest payment or the information needed for a simple calculation. Live mortgage underwriting uses product-specific definitions, value rules, escrow analysis, mortgage-insurance rules, and lender pricing, so do not turn an exam shortcut into a universal lending policy.
The PELT method for mortgage calculation questions
- Pick the requested output. Is the question asking for payment, equity, leverage, or a transaction fee?
- Extract the correct base. PITI uses monthly amounts, equity uses current value and liens, LTV uses loan and value, and points use loan amount.
- Level the time units. Convert annual taxes and insurance to monthly amounts before calculating PITI.
- Total the right debts. For equity, subtract all stated secured balances. For CLTV, add all relevant loan amounts before dividing.
- Translate percentages. Convert 80% to 0.80 and 1.5 points to 0.015 before multiplying or dividing.
- Keep labels attached. A mathematically correct dollar figure can still answer the wrong question if a point is mistaken for a rate reduction or escrow for an expense.
- Test the result. Higher debt should raise LTV and lower equity, while higher taxes or insurance should raise PITI.
- Requested amount
- Monthly taxes
- Formula
- Annual property taxes / 12
- Base to protect
- Annual tax amount
- Requested amount
- Monthly insurance
- Formula
- Annual premium / 12
- Base to protect
- Annual premium
- Requested amount
- PITI
- Formula
- Monthly P&I + taxes + insurance
- Base to protect
- Monthly units only
- Requested amount
- Dollar equity
- Formula
- Current value - secured balances
- Base to protect
- Current value
- Requested amount
- Equity percentage
- Formula
- Equity / current value x 100
- Base to protect
- Same current value
- Requested amount
- LTV
- Formula
- Loan amount / required value x 100
- Base to protect
- Stated or program value
- Requested amount
- Maximum loan
- Formula
- Value x maximum LTV
- Base to protect
- Eligible property value
- Requested amount
- Point cost
- Formula
- Loan amount x point percentage
- Base to protect
- Loan, not price
- Requested amount
- Origination fee
- Formula
- Loan amount x fee rate
- Base to protect
- Rate stated in problem
Can you follow the calculation from facts to answer?
Build a monthly PITI payment
Scenario: Monthly principal and interest are $2,180. Annual property taxes are $7,200, and annual homeowners insurance is $1,800. The question asks for PITI only.
- Monthly taxes are $7,200 / 12 = $600.
- Monthly insurance is $1,800 / 12 = $150.
Answer: PITI is $2,180 + $600 + $150 = $2,930 per month. Do not add an unstated association fee or mortgage-insurance premium.
Calculate equity with two liens
Scenario: A property is worth $610,000. Its first-mortgage balance is $352,000 and a home-equity loan balance is $48,000.
- Total secured debt is $352,000 + $48,000 = $400,000.
- Equity is current value minus both balances.
Answer: Dollar equity is $610,000 - $400,000 = $210,000. Equity percentage is $210,000 / $610,000 = about 34.43%.
Use the lower value base for purchase LTV
Scenario: A buyer agrees to pay $425,000, the appraisal is $410,000, and the first mortgage is $328,000. The problem directs you to use the lower of price or appraised value.
- The required value base is $410,000, not the $425,000 price.
- $328,000 / $410,000 = 0.80.
Answer: The LTV is 80%. Using the sale price would produce about 77.18% and answer a different calculation.
Separate points from origination fees
Scenario: A $360,000 loan has 1.25 discount points and a separate 0.75% origination fee.
- Discount-point cost is $360,000 x 0.0125 = $4,500.
- Origination fee is $360,000 x 0.0075 = $2,700.
Answer: The two loan charges total $7,200. Only the $4,500 item is identified as discount points tied to rate pricing.
Which math errors cost the most points?
- Trap
- PITI means every monthly ownership cost.
- Correction
- PITI names four components. Mortgage insurance, association dues, utilities, and maintenance may sit outside the acronym.
- Trap
- Divide the monthly tax amount by 12 again.
- Correction
- Convert only annual figures. A monthly amount is ready to add to monthly PITI.
- Trap
- An escrow account is an additional property tax.
- Correction
- Escrow is the holding and payment mechanism for funds collected toward taxes and insurance, not a duplicate expense.
- Trap
- Equity equals current value minus the original loan amount.
- Correction
- Use current secured balances when current equity is requested, including subordinate liens stated in the facts.
- Trap
- A down payment always equals current equity.
- Correction
- Equity changes with principal repayment, value changes, and new secured borrowing.
- Trap
- LTV is value divided by loan amount.
- Correction
- LTV is loan divided by value. Reversing the fraction can create a number above 100% for an ordinary loan.
- Trap
- Always use the sale price as the LTV denominator.
- Correction
- Use the denominator required by the question or loan program. Many purchase rules use the lower of price or appraisal.
- Trap
- One point on a $400,000 purchase always costs $4,000.
- Correction
- One point is 1% of the loan amount. It costs $4,000 only if the loan itself is $400,000.
- Trap
- One discount point lowers the note rate by one percentage point.
- Correction
- The point defines the fee size, while the rate reduction depends on pricing and market conditions.
- Trap
- Every percentage-based lender charge is a discount point.
- Correction
- Origination and other lender charges can also use a percentage. Identify what the charge pays for.
Can you solve these original problems?
These questions are original study items aligned to the published outline. They are not copied, recalled, or predicted PSI questions.
1. Monthly principal and interest are $1,940. Annual taxes are $6,600 and annual homeowners insurance is $1,440. What is monthly PITI?
- $2,060
- $2,490
- $2,610
- $2,730
Show answer and explanation
Answer: C
Monthly taxes are $550 and monthly insurance is $120. PITI is $1,940 + $550 + $120 = $2,610.
2. A property is worth $475,000 and is secured by a $290,000 first mortgage and a $35,000 second mortgage. What is the owner's dollar equity?
- $150,000
- $185,000
- $290,000
- $325,000
Show answer and explanation
Answer: A
Total secured debt is $325,000. Equity is $475,000 - $325,000 = $150,000.
3. A $340,000 loan is made on a property with a required value base of $400,000. What is the LTV?
- 15%
- 80%
- 85%
- 117.65%
Show answer and explanation
Answer: C
$340,000 / $400,000 = 0.85, or 85% LTV.
4. How much do 1.5 points cost on a $280,000 mortgage?
- $1,867
- $2,800
- $4,200
- $42,000
Show answer and explanation
Answer: C
Convert 1.5 points to 0.015, then multiply: $280,000 x 0.015 = $4,200.
5. Which statement correctly distinguishes a discount point from an origination fee?
- A point is based on sale price while an origination fee is based on appraised value
- A discount point is tied to rate pricing while an origination fee pays for making the loan
- An origination fee always reduces the interest rate by 1%
- The two terms must always describe the same charge
Show answer and explanation
Answer: B
Both charges may use loan amount as the arithmetic base, but their purposes differ.
Which numbers and formulas are easy to confuse?
- Terms
- Principal vs. interest
- Difference
- Principal is borrowed money and principal repayment reduces the balance. Interest is the price charged for using that money.
- Question cue
- Balance reduction versus borrowing cost.
- Terms
- PITI vs. principal and interest
- Difference
- PITI adds property taxes and homeowners insurance to the loan's principal-and-interest payment.
- Question cue
- Loan payment core versus expanded monthly housing payment.
- Terms
- PITI vs. total monthly housing expense
- Difference
- Total housing expense can also include mortgage insurance, association dues, ground rent, or other required charges.
- Question cue
- Four named components versus all required recurring housing costs.
- Terms
- Equity vs. down payment
- Difference
- Down payment is money or value contributed at purchase. Equity is the current value remaining after secured debts.
- Question cue
- Initial transaction input versus current ownership position.
- Terms
- Equity vs. seller net
- Difference
- Equity subtracts secured debt from value. Seller net also subtracts transaction costs, credits, payoffs, and adjustments from sale proceeds.
- Question cue
- Ownership value versus settlement cash.
- Terms
- LTV vs. equity percentage
- Difference
- LTV measures debt relative to value. Equity percentage measures remaining owner value relative to value.
- Question cue
- Creditor leverage versus owner share.
- Terms
- Original LTV vs. current LTV
- Difference
- Original LTV uses the original loan and required transaction value. Current LTV uses a current balance and current value when the question defines it that way.
- Question cue
- Underwriting at origination versus later leverage estimate.
- Terms
- Discount point vs. origination fee
- Difference
- A discount point buys a pricing tradeoff tied to rate. An origination fee pays the lender for making and administering the loan.
- Question cue
- Rate choice versus loan-production charge.
- Terms
- One point vs. one percentage point of interest
- Difference
- One point is 1% of loan amount. It does not mean the note rate falls by one percentage point.
- Question cue
- Dollar fee percentage versus change in annual interest rate.
What does the outline expect you to calculate?
- Topic
- PITI components
- What to know
- Principal, interest, property taxes, homeowners insurance, monthly principal and interest, annual tax bill, annual premium, escrow collection, servicer payment, projected payment, fixed amount, changing amount, and total monthly housing cost
- Best exam move
- Convert annual taxes and insurance to monthly figures before adding them to the supplied principal-and-interest payment.
- Topic
- Principal and interest
- What to know
- Original principal, unpaid balance, note rate, monthly payment, amortization, principal reduction, interest charge, payment schedule, fixed rate, adjustable rate, balloon, term, and loan estimate
- Best exam move
- Do not treat the entire principal-and-interest payment as interest or as principal reduction.
- Topic
- Taxes, insurance, and escrow
- What to know
- Annual property taxes, annual hazard premium, monthly deposit, initial escrow, reserve, shortage, surplus, reassessment, premium change, mortgage insurance, flood insurance, direct payment, servicer, and escrow account
- Best exam move
- Divide each annual amount by 12 and distinguish a monthly escrow collection from a prepaid or initial closing deposit.
- Topic
- PITI and broader housing expense
- What to know
- PITI, mortgage insurance, association dues, ground rent, special assessment, utilities, maintenance, projected payments, total monthly payment, qualifying housing expense, recurring debt, and affordability
- Best exam move
- Add only the items requested. State when the result is broader than literal PITI.
- Topic
- Equity amount
- What to know
- Market value, appraised value, first mortgage balance, second mortgage, HELOC balance, judgment lien, tax lien, secured debt, gross equity, owner investment, appreciation, depreciation, principal paydown, and cash-out borrowing
- Best exam move
- Subtract every secured balance the problem includes from the current value, not from the original price.
- Topic
- Equity percentage
- What to know
- Dollar equity, current value, equity ratio, percentage ownership, complement of LTV, multiple liens, negative equity, overleveraged property, rounding, and value change
- Best exam move
- Equity percentage = equity / value x 100, using the same value base throughout the calculation.
- Topic
- Loan-to-value ratio
- What to know
- Loan amount, property value, sales price, appraised value, lower-of rule, original loan, current balance, purchase, refinance, percentage, lender risk, mortgage insurance, eligibility, and rate pricing
- Best exam move
- LTV = loan / value x 100. Read whether the question wants original LTV, current LTV, or a maximum loan amount.
- Topic
- Combined leverage
- What to know
- First mortgage, subordinate financing, closed-end second, HELOC, combined loan-to-value, CLTV, HCLTV, credit limit, drawn balance, total liens, and property value
- Best exam move
- When the question asks for combined leverage, add the relevant loan amounts before dividing by value.
- Topic
- Discount points
- What to know
- One point, fraction of a point, loan amount, upfront charge, interest-rate reduction, pricing choice, break-even period, borrower-paid, seller-paid, lender credit, negative points, and closing costs
- Best exam move
- Convert points to a decimal and multiply by loan amount; never multiply by sale price unless the loan equals the price.
- Topic
- Origination charges
- What to know
- Origination fee, application, processing, underwriting, funding, administration, verification, rate lock, creditor, loan originator, Section A, Loan Estimate, Closing Disclosure, tolerance, and percentage fee
- Best exam move
- Calculate the stated fee from the loan base and keep it distinct from third-party services and discount points.
- Topic
- Reverse-solving loan math
- What to know
- Maximum loan, required down payment, value from loan and LTV, fee rate from fee amount, loan amount from point cost, annual tax from monthly escrow, annual insurance, and missing PITI component
- Best exam move
- Rearrange one formula at a time and label the unknown before inserting numbers.
- Topic
- Disclosure and real-world limits
- What to know
- Projected Payments table, Loan Costs, Origination Charges, points label, dollar fee, percentage fee, lender credit, mortgage insurance, escrow status, APR, finance charge, cash to close, program rule, and changed circumstance
- Best exam move
- Use disclosures to identify the category, but answer the exact math question rather than adding every visible cost.
How should you drill this calculation?
- Session
- 1. Build PITI correctly
- Focus
- Principal, interest, taxes, insurance, annual-to-monthly conversion, escrow, mortgage insurance, dues, and total housing expense
- Proof you are ready
- Solve twelve PITI problems and label excluded costs correctly.
- Session
- 2. Track equity
- Focus
- Current value, first mortgage, second mortgage, liens, principal paydown, appreciation, depreciation, borrowing, dollar equity, and equity ratio
- Proof you are ready
- Calculate dollar and percentage equity in fifteen one-lien and multiple-lien cases.
- Session
- 3. Master LTV
- Focus
- Loan numerator, value denominator, lower of price or appraisal, original LTV, current LTV, maximum loan, down payment, and CLTV
- Proof you are ready
- Reverse-solve loan, value, and LTV with at least 90% accuracy.
- Session
- 4. Calculate points
- Focus
- One point, fractional points, loan amount, decimal conversion, discount point, rate tradeoff, lender credit, and break-even concept
- Proof you are ready
- Complete twenty point-cost calculations without using sale price as the base.
- Session
- 5. Separate loan costs
- Focus
- Origination fee, application, underwriting, processing, discount points, third-party services, lender credits, Loan Estimate Section A, and cash to close
- Proof you are ready
- Classify twenty charges by purpose and calculate every stated percentage fee.
- Session
- 6. Apply PELT
- Focus
- Requested output, correct base, monthly units, liens, percentage conversion, labels, direction check, and reasonableness
- Proof you are ready
- Score at least 90% on fresh mixed payment, equity, LTV, and fee questions.
Do not count recognition as mastery. Close the notes and explain the rule, apply it to a new fact pattern, and identify why each distractor fails.
Build speed without skipping the setup
From concept to decision
Drill this topic, then review the explanation
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Questions students ask about PITI, Equity, LTV, Points, and Origination Fees
What does PITI stand for in real estate?
PITI stands for principal, interest, taxes, and insurance. Principal repays the amount borrowed, interest is the lender's charge for the credit, property taxes fund government obligations, and homeowners insurance protects against covered property losses. Mortgage insurance and association dues may affect total housing cost but are not literally the four letters in PITI.
How do you calculate a monthly PITI payment?
Add the monthly principal-and-interest payment to one-twelfth of annual property taxes and one-twelfth of annual homeowners insurance. If the question includes mortgage insurance or another required monthly housing charge, add it when asked for the total payment or housing expense, but label the expanded total accurately.
What is equity in real estate?
Equity is the current property value minus debts and liens secured by the property. If a home is worth $500,000 and secured balances total $320,000, the owner's equity is $180,000. Equity can change because value changes, principal is repaid, another lien is added, or costs affect the owner's net position.
What is the formula for loan-to-value ratio?
LTV equals the relevant loan amount divided by the property's value base, multiplied by 100. In a simple exam problem, use the value stated. In actual purchase underwriting, a program may use the lower of the price or appraised value, as Fannie Mae does for many purchase loans. Follow the denominator named in the question.
Is an 80% LTV the same as 20% equity?
In a simplified one-loan problem with no other liens and the same value denominator, yes. The percentages complement each other to 100%. They may not be exact opposites when there are subordinate liens, financed costs, changing values, or program-specific value rules.
How much is one mortgage point?
One point equals 1% of the loan amount. One point on a $275,000 loan is $2,750. A half point is 0.5%, or $1,375 on that loan. Points are calculated from the loan amount, not the purchase price, down payment, appraised value, or monthly payment.
Does one discount point always reduce the interest rate by 1%?
No. One point describes a cost equal to 1% of the loan amount. It does not promise a one-percentage-point interest-rate reduction. The rate change depends on the lender, product, market, and pricing at that time. Keep the fee calculation separate from the rate effect.
What is an origination fee?
It is a lender charge for making the mortgage loan. Origination services can include application processing, underwriting, funding, and administration. When an exam problem states the fee as a percentage or points, multiply that percentage by the loan amount. Do not assume it buys a lower rate unless the facts call it a discount point.
Are discount points and origination fees the same?
No. Both can be percentage-based upfront loan charges, which is why the arithmetic can match. Discount points are associated with obtaining a lower interest rate. An origination fee compensates for making and processing the loan. Read the purpose, not just the word point.
Are these official Illinois broker exam questions?
No. They are original questions aligned to the public Real Estate Math outline effective June 24, 2026. The financial definitions are grounded in current CFPB rules and guidance reviewed through August 1, 2026.
Primary sources
- PSI Illinois Candidate Information Booklet dated June 24, 2026
- CFPB definition of PITI
- CFPB explanation of principal and interest versus total payment
- CFPB explanation of loan-to-value ratio
- CFPB guidance on points and lender credits
- CFPB definition of mortgage origination services and fees
- CFPB Loan Estimate explainer
- CFPB Regulation Z Section 1026.37, Loan Estimate content
- Fannie Mae Selling Guide, loan-to-value ratio calculations
- CFPB explanation of mortgage amortization and equity growth
The current official outline controls the tested scope. Statutes, regulations, and official agency materials control when a general study rule and a jurisdiction-specific rule differ.
Editorial status
Checked against primary sources
The Pass Illinois editorial team last checked this guide on August 1, 2026. Every practice question is an original study item, and the source links above let you verify the rules that support the lesson.