How your mortgage payment is calculated
The core of a mortgage payment is principal and interest, worked out with the standard amortization formula: M = P × r × (1 + r)^n ÷ ((1 + r)^n − 1). P is the loan amount, r is the monthly interest rate (the annual rate divided by 12) and n is the number of monthly payments. A $200,000 loan at 6% for 30 years has r = 0.005 and n = 360, giving a payment of $1,199.10. Over the life of that loan you would pay about $231,676 in interest, more than the amount borrowed.
Lenders usually collect more than principal and interest. Property tax and homeowners insurance are often paid into an escrow account each month, and together these four parts are known as PITI. This calculator adds tax (as a percentage of the home price), insurance, private mortgage insurance and any HOA dues to show the full monthly cost.
Down payment and PMI
On a conventional loan, putting down less than 20% usually means paying private mortgage insurance, which protects the lender if you default. PMI typically costs 0.3% to 1.5% of the loan amount per year depending on your credit score and down payment, and it can be removed once you reach 20% equity. The calculator applies your PMI rate only when the down payment is under 20%. FHA loans use a different mortgage insurance premium that often lasts for the life of the loan, so check your lender’s figures if you are using one.
Reading the amortization schedule
Each payment is the same, but the split changes over time. Early on most of the payment goes to interest because the balance is large. As the balance falls, more of each payment reduces principal. On a 30-year loan at 6%, roughly three quarters of the payments in the first year are interest, and it takes around 18 to 19 years before principal overtakes interest. The yearly table under your results shows exactly how much interest and principal you pay each year and the balance remaining.
Ways to lower the cost
A shorter term raises the monthly payment but cuts total interest dramatically. The same $200,000 at 6% over 15 years costs $1,687.71 a month but only about $103,788 in interest. A larger down payment reduces both the loan and PMI. Shopping several lenders and improving your credit score before applying can lower the rate; even half a percentage point makes a five-figure difference over 30 years. Remember that buying a home also involves closing costs, typically 2% to 5% of the price, plus maintenance, which many owners budget at about 1% of the home’s value per year. Use this calculator to compare scenarios, then confirm exact figures with a Loan Estimate from your lender.
Frequently asked questions
What is included in a mortgage payment?
Principal and interest, plus usually property tax and homeowners insurance paid through escrow. PMI and HOA dues may also apply.
How much house can I afford?
A common guideline is to keep total housing costs under about 28% of gross monthly income and all debt payments under about 36%.
When can I stop paying PMI?
On conventional loans you can usually request cancellation at 20% equity, and it ends automatically at 22% equity based on the original schedule.
Is a 15-year or 30-year mortgage better?
A 15-year loan saves a lot of interest and usually has a lower rate; a 30-year loan has a lower payment and more flexibility. The right choice depends on your budget and goals.