What your monthly mortgage payment includes
A mortgage payment is usually more than repaying the loan. Lenders in the US typically collect four things each month, often shortened to PITI:
- Principal — the part that reduces what you owe.
- Interest — the lender’s charge for the money, worked out each month on the remaining balance.
- Taxes — property tax, collected monthly and held in an escrow account until the bill is due.
- Insurance — homeowners insurance, also usually paid through escrow.
Two more costs apply to some buyers. Private mortgage insurance (PMI) is added to conventional loans when the down payment is under 20% of the price. HOA fees are paid to a homeowners association for condos and many planned communities, usually directly rather than through the lender.
Principal and interest together stay the same every month on a fixed-rate loan. What changes is the split: at first most of the payment is interest, and each month a little more goes to principal. The chart above shows this shift year by year.
The mortgage payment formula
The principal-and-interest payment on a fixed-rate loan comes from the standard amortization formula:
M = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)
- M
- monthly principal and interest payment
- P
- loan amount (home price minus down payment)
- r
- monthly interest rate: the annual rate divided by 12, as a decimal (6.5% → 0.065 ÷ 12)
- n
- number of monthly payments (30 years → 360)
If the interest rate is 0%, the formula reduces to M = P ÷ n. Property tax, insurance, PMI and HOA fees are then added on top:
Total = M + (price × tax rate ÷ 12) + (insurance ÷ 12) + PMI + HOA
This calculator charges interest on the outstanding balance each month and rounds every payment to the cent, the way a lender’s statement does. The last payment absorbs the leftover cents so the balance ends at exactly zero. The full derivation is in our guide to how mortgage payments are calculated.
Worked example
You buy a $400,000 home with 20% down on a 30-year fixed loan at 6.5%. Property tax is 1.1% a year and insurance costs $1,800 a year.
- Loan amount: $400,000 − $80,000 = $320,000
- Monthly rate: 6.5% ÷ 12 = 0.541667%, so r = 0.00541667
- Payments: 30 × 12 = 360
- Principal and interest: $320,000 × 0.00541667 × 6.9918 ÷ 5.9918 = $2,022.62
- Property tax: $400,000 × 1.1% ÷ 12 = $366.67; insurance: $1,800 ÷ 12 = $150.00
- Total monthly payment: $2,539.29
Over 30 years you would pay about $408,100 in interest — more than the amount borrowed. At the same rate on a 15-year term the payment rises to about $2,787.54, but total interest falls to about $181,800.
Things to keep in mind
- Small rate changes matter. On a $320,000 loan over 30 years, the payment is $1,918.56 at 6% and $2,128.97 at 7% — over $75,000 difference across the loan.
- PMI is temporary. Under the US Homeowners Protection Act, lenders must cancel PMI automatically when the balance is scheduled to reach 78% of the original home value, and you can ask for it to be removed at 80%. The calculator drops PMI at the 78% point.
- Escrow costs change. Property tax is reassessed and insurance premiums are repriced, so your total payment can rise even on a fixed-rate loan.
- Closing costs are separate. Expect to pay roughly 2%–5% of the loan in fees at closing, on top of the down payment.
- Adjustable-rate loans work differently. This calculator assumes the rate is fixed for the whole term. For an ARM, the result only describes the initial fixed period.
Paying extra
Extra principal reduces the balance that interest is charged on, so every extra dollar saves interest for the rest of the loan. Use the extra payment field above, or the amortization calculator for a month-by-month schedule.
Frequently asked questions
How much house can I afford?
A common lender guideline is the 28/36 rule: keep total housing costs under about 28% of your gross monthly income and all debt payments under about 36%. Lenders also look at your credit score, savings and the loan type, so treat this as a starting point rather than a limit.
Does the monthly payment include property tax and insurance?
Yes. The estimated monthly payment adds property tax, homeowners insurance, PMI when it applies and any HOA fee to the principal and interest. The breakdown lists each part separately.
When does PMI go away?
On a conventional loan, PMI must end automatically once the balance is scheduled to fall to 78% of the home’s original value, and you can request removal at 80%. FHA loans use a separate mortgage insurance premium with different rules.
Is a 15-year or 30-year mortgage better?
A 15-year loan has higher monthly payments but far less total interest, and rates are usually lower. A 30-year loan keeps the payment affordable and leaves more room in your budget. Many borrowers take a 30-year loan and pay extra when they can.
How much do extra payments save?
It depends on the rate and how early you start. On a $320,000 loan at 6.5% over 30 years, paying an extra $200 a month from the start saves about $105,000 in interest and ends the loan 6 years and 7 months early. Enter an extra amount above to see your own figure.
Why is most of my early payment interest?
Interest is charged on the remaining balance. At the start the balance is at its highest, so the interest portion is largest. As you repay principal, less interest accrues and more of each fixed payment goes toward the balance.
Sources
Last reviewed September 15, 2026