Expenses when Taxes and Insurance are included in mortgage

5 Replies

When your taxes and insurance are already coming out of your mortgage, do you need to include them in the expenses on top of your mortgage payment? Seems to me that you wouldn't include them in addition to the mortgage as they are part of it. In Brandon Turner's Video on the Four Square Method, he mentions this briefly at 5:04 in the video and says he'll come back to it, but he never does. I've put a link to the video in the Description so you can see what I'm talking about. This really has me stumped so thanks in advance!

Spence

@Spencer Herrick

Just don't double count. That's why the acronyms PI and PITI exist to differentiate. Also, don't forget that your PITI doesn't always match your principal, interest, and escrow payments. Because the law/regulations on how min escrow amounts are determined, sometimes the calcs put it a bit higher or lower...

@Spencer Herrick

https://assets1.biggerpockets....

Are your talking about the above?  I don't know of anything to read on it.  I don't mind chatting if you'd like -- direct message me.

I think basically its a difference between practice and calculations. In "real life," when you taxes and insurance payments are escrowed with your mortgage your "monthly" payment is your PITI. However, for calculations purposes you sometimes like to separate them out between the PI and the TI portions. On block 3, your TI is already on top while the PI (ie mortgage is on teh bottom). So, if you just looked at your "mortgage" voucher that you'd be receiving every month you would be double counting your TI expenses.

So, its the difference between understanding what is your 'PI mortgage payment' vs the 'PITI mortgage payment' that your monthly payment voucher/due when you have escrowed payments.

Make sense?