Lesson 3 of 25 · 7 min
Taxes and insurance inside the payment
Tax and insurance ride inside the payment on clocks the loan itself does not set.
The same PITI of $2,471.79 from lesson 1 is two kinds of cash sharing one date. Of that total, $1,986.45 is principal-and-interest, 80.4 percent. Tax plus insurance is $348.33 + $137.00 = $485.33, which is 19.6 percent. Those two bills move on their own clocks. The loan's rate does not set them. The loan's remaining balance does not set them.
Property tax is a levy on the house, reset by an assessment calendar. Insurance is a premium on the house, reset by a policy calendar. Neither calendar is the 360-month amortization clock. A year in which the rate is unchanged can still reprint the payment, because the $485.33 leg moved and the $1,986.45 leg did not.
Track 5 lesson 12 separates a rate change from a capacity change: two numbers, two machines, not additive. Tax and insurance inside the payment are the everyday version of a charge that is not the loan. They sit in the same cash figure. They are not interest. They are not a draw. They are not a haircut on the house. They are bills averaged into twelve collections.
Ilex Lending can hold the 6.55 percent rate still and reprint $2,471.79 as a larger number the following year, solely because $4,180 and $1,644 were replaced by larger annuals. The PI line is the loan. The other line is the house's running costs, collected by the same agent on the same day. Later lessons put those bills into escrow. This one is only the split of the printed total.
A fifth of the payment can be a charge the loan did not compute. Rate and capacity are still two numbers. Tax and insurance are a third.
Key terms
- Tax-and-insurance leg
- The portion of PITI that is not principal-and-interest. On the Kestrel book, $485.33 of $2,471.79.
- Assessment calendar
- The timetable on which property tax is reset. It is not the loan's amortization clock.
- Policy calendar
- The timetable on which the insurance premium is reset. Also not the loan's clock.
Worked example
Eighty percent loan, twenty percent bills
Same Kestrel Home Finance payment as lesson 1. Printed total $2,471.79. PI $1,986.45. Tax $348.33. Insurance $137.00.
- Principal-and-interest
- $1,986.45
- Tax plus insurance
- $485.33
- What sets the PI line
- P, r, and n
- What sets the bills
- Two other calendars
80.4% of the printed total.
$348.33 + $137.00. 19.6%.
The installment formula.
Assessment and policy, not the loan.
Four-fifths of the cash is the loan. One-fifth is not. Those two shares do not have to move together.
Check yourself
Printed PITI $1,570.29, of which principal-and-interest is $1,202.29. What share is the loan, what share is tax plus insurance, and does a still rate keep that second share still?
Taxes and insurance in the payment are the everyday version of a charge that is not the loan, the way Track 5 lesson 12 separates a rate from a capacity. Open A rate change is not a capacity change →
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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.