How the payment is calculated
Most US home loans are fixed-rate and fully amortizing: the principal-and-interest payment stays the same every month, but the split between the two shifts over time. With the example above — $320,000 borrowed at 6.5% for 30 years — about $1,733 of the first $2,023 payment is interest. By the final years, almost all of it is principal. The chart above shows that shift for your numbers.
P is the loan amount, r is the annual rate divided by 12, and n is the number of monthly payments (360 for a 30-year loan).
Taxes, insurance and escrow
Lenders usually collect property tax and homeowners insurance with each payment and hold the money in escrow until the bills are due. Both change over time: tax bills follow your county’s assessment, and insurance premiums are repriced every year, so treat those lines as today’s estimate rather than a fixed cost. Effective property tax rates range from under 0.5% of home value in some states to over 2% in others — your county assessor’s site lists the actual rate.
When you pay PMI, and when it stops
With less than 20% down on a conventional loan, lenders typically require private mortgage insurance. It usually costs between 0.3% and 1.5% of the loan amount per year, depending on your credit score and down payment. Under the Homeowners Protection Act, PMI must end automatically once your balance is scheduled to reach 78% of the home’s original value, and you can ask to cancel it at 80%. The calculator drops PMI at the 78% mark, so extra payments end it sooner.
FHA loans charge their own mortgage insurance premium with different rules; this calculator models conventional PMI only.
How much house fits your budget
A common lender guideline is the 28/36 rule: housing costs at or below 28% of gross monthly income, and all debt payments — car, student loans, cards and the mortgage — at or below 36%. Lenders may approve more, but the payment has to work with your take-home pay, not your gross salary. The paycheck calculator shows what actually reaches your account.
Paying extra
Every extra dollar goes directly to principal, which reduces the interest charged in every month that follows. Even $100 a month can take years off a 30-year loan. Before you start, confirm your loan has no prepayment penalty and that the lender applies the extra amount to principal. If rates have dropped since you bought, compare that with a refinance.
Common questions
What is included in a monthly mortgage payment?
Principal and interest go to the lender. Most lenders also collect property tax and homeowners insurance into an escrow account, so those are usually part of the same payment. PMI applies when you put less than 20% down on a conventional loan, and HOA dues are normally paid separately but still belong in your housing budget.
Is a 15-year or 30-year mortgage better?
A 15-year loan usually carries a lower rate and costs far less interest, but the monthly payment is much higher. A 30-year loan keeps the required payment low, and you can still pay extra when you can afford it. Switch the term above to see the difference for your numbers.
How much should I put down?
Twenty percent avoids PMI on a conventional loan, but it is not required. Many conventional programs accept 3% down, and FHA loans allow 3.5% with a credit score of 580 or higher. A smaller down payment means a larger loan, more interest and, usually, mortgage insurance.
Does this include closing costs?
No. Closing costs — lender fees, title insurance, appraisal and prepaid items — are paid when you close and commonly run 2% to 5% of the loan amount. Your Loan Estimate lists them line by line.
Sources
- CFPB — What is private mortgage insurance?
- CFPB — When can I remove PMI from my loan?
- Freddie Mac — Primary Mortgage Market Survey (weekly average rates)
Results are estimates for educational use and are not financial, tax or legal advice. Confirm figures with your lender, plan administrator or a tax professional before you act. Spotted an error? Tell us.