A mortgage payment is rarely just principal and interest. Property tax, insurance, mortgage insurance and HOA dues frequently add 25–35% on top, and lenders qualify you on the full figure. This calculator builds the complete monthly cost and shows exactly where each dollar goes over the life of the loan.
What makes up the payment
M = P · i / (1 − (1 + i)^−n) M = monthly principal & interest P = amount borrowed i = annual rate ÷ 12 n = number of monthly payments
| Component | Description |
|---|---|
| Principal | Repays the amount borrowed. Small at first, dominant later. |
| Interest | The lender's charge on the outstanding balance. Largest early on. |
| Property tax | Levied by local government on assessed value; usually escrowed monthly. |
| Home insurance | Hazard cover required by every lender; also escrowed. |
| PMI | Protects the lender when the down payment is under 20%. Cancellable. |
| HOA dues | Community fees. Paid separately but counted in qualification. |
Why early payments are almost all interest
Interest is charged on the balance outstanding, and at the start that balance is at its maximum. On a 30-year loan at 6.5%, roughly 78% of the first payment is interest and only 22% touches the principal.
The ratio inverts slowly. On a typical 30-year mortgage the crossover — the first payment where principal exceeds interest — arrives around year 18. This is why extra payments made early are worth far more than the same money paid later: each dollar removes a balance that would otherwise accrue interest for decades.
Choosing a term
A shorter term raises the payment and cuts total interest sharply. On $320,000 at 6.5%:
| Term | Monthly P&I | Total interest |
|---|---|---|
| 30 years | $2,023 | $408,142 |
| 20 years | $2,386 | $252,562 |
| 15 years | $2,788 | $181,798 |
The 15-year option costs about 38% more per month but saves over $226,000 in interest. The trade-off is flexibility: a 30-year loan with voluntary extra payments gets close to the same result while letting you stop in a bad month.
Private mortgage insurance
PMI applies when you put down less than 20%, typically costing 0.3–1.5% of the loan each year. It protects the lender, not you.
Under US federal rules a lender must cancel PMI automatically once the balance reaches 78% of the original value, and must honour a written request at 80%. Because these use the original purchase price, appreciation does not help automatically — but requesting cancellation based on a new appraisal often can.
How much house you can afford
Lenders apply two debt-to-income tests:
- Front-end ratio — housing costs alone against gross monthly income. Conventional guidance caps this near 28%.
- Back-end ratio — all debt payments, housing included, against gross income. Usually capped between 36% and 43%.
These are the lender's limits, not a budget. Qualifying for a payment and comfortably affording one are different questions, particularly with childcare, tuition or variable income in the picture.
Worked example
Using the values pre-loaded in the calculator above:
| Input | Value |
|---|---|
| Home price ($) | 400000 |
| Down payment ($) | 80000 |
| Interest rate (%) | 6.5 |
| Loan term (yrs) | 30 |
| Property tax (yearly) ($) | 4800 |
| Home insurance (yearly) ($) | 1800 |
| HOA fee (monthly) ($) | 0 |
| PMI rate (yearly) (%) | 0.5 |
| Extra monthly payment ($) | 0 |
| Output | Value |
|---|---|
| Total monthly payment | $2,572.62 |
| Monthly principal & interest | $2,022.62 |
| Number of payments | 360 |
| Total interest | $408,142.36 |
| Total of payments | $728,142.36 |
| Property tax | $400.00 |
| Insurance | $150.00 |
| PMI | not required (LTV ≤ 80%) |
Frequently asked questions
How much deposit do I need?
Twenty percent avoids PMI entirely, but conventional loans start at 3%, FHA at 3.5%, and VA and USDA loans can require nothing down. A smaller deposit means a larger loan, PMI, and more total interest.
Should I pay extra toward my mortgage?
Extra payments applied to principal shorten the term and cut interest dramatically — $300 a month on a $320,000 loan at 6.5% saves roughly $150,000 and clears it about 8 years early. Weigh that against higher-rate debt and any employer retirement match first.
What is the difference between interest rate and APR?
The interest rate prices the loan itself. APR folds in points, origination and other lender fees, so it reflects the true annual cost. Compare offers on APR, not headline rate.
Should I choose a fixed or adjustable rate?
Fixed rates never change, making budgeting certain. Adjustable rates start lower then reset periodically against an index. Fixed suits long stays; adjustable can suit a confident short hold, with the reset risk on you.
What are discount points?
One point costs 1% of the loan and typically buys 0.25% off the rate. It pays off if you keep the loan past the break-even, usually five to seven years.