What your monthly payment is actually made of
When a lender quotes you a mortgage payment, they usually quote principal and interest — the part that repays the loan. That is rarely what leaves your account each month. The full payment is known in the industry as PITI: principal, interest, taxes and insurance, with mortgage insurance and association dues stacked on top where they apply.
The gap is not small. On the $400,000 example above, principal and interest come to $2,022.62 — but the real monthly cost is $2,572.62 once tax and insurance are included. That is 27% more than the quoted figure, and it is the single most common reason a house that looked affordable stops being affordable after closing.
Only the first component pays down your debt. Property tax and insurance are collected into an escrow account and paid out on your behalf; PMI protects the lender, not you, and buys you nothing you keep; HOA dues go to the association. Understanding which parts build equity and which are simply the cost of occupying the house is the difference between a payment you chose and a payment that happened to you.
How principal and interest are calculated
The loan portion uses the standard amortizing payment formula. Your monthly rate is the annual rate divided by twelve, and the payment is the fixed amount that clears the balance in exactly the loan term.
What changes over time is the split. In the first month of a $320,000 loan at 6.5%, about $1,733 of the $2,022.62 payment is interest and only around $289 touches the principal. That ratio inverts slowly and then quickly: by the final years, almost the entire payment is principal. This is why the early years of a mortgage build so little equity, and why an extra payment made early is worth several times the same payment made late.
Property tax and insurance: the part people forget
Property tax varies more than any other line on this page. Rates run from well under 0.5% of assessed value per year in some states to over 2% in others, and they vary again by county and district. A $400,000 home might carry $2,000 a year in one state and $9,000 in another — a difference of nearly $600 a month on an identical house.
Do not accept a calculator's default here, including ours. Look up the real figure on the county assessor's site or the property listing. And expect it to move: many jurisdictions reassess after a sale, so the tax the previous owner paid may not be the tax you pay.
Homeowner's insurance is smaller but still material, typically $1,200 to $2,500 a year for a median-priced home, and considerably more in areas exposed to wildfire, flood or hurricane. Both are usually collected monthly into escrow, which is why your lender — not you — pays the bill when it falls due.
PMI: what it costs and when it stops
If you put down less than 20%, expect private mortgage insurance. It typically costs between 0.3% and 1.5% of the original loan amount per year, depending on your credit and how small the down payment is, and it is charged on the original loan amount rather than the shrinking balance.
The important thing is that it ends. Under the US Homeowners Protection Act your lender must cancel PMI automatically once your scheduled balance reaches 78% of the home's original value, and you may request cancellation at 80%. Two details matter:
- The automatic drop-off follows the original schedule. Making extra payments does not bring it forward — though it does get you to the 80% request threshold sooner.
- It uses the original purchase price, not today's value. If your home has appreciated significantly, requesting cancellation with a fresh appraisal can end PMI years earlier than waiting.
The calculator above shows the exact month yours would end and what it will have cost by then. On a $400,000 home with 10% down, that is around $150 a month for roughly nine years — about $16,000 in total, for insurance that protects your lender.
15-year versus 30-year
A 15-year mortgage carries a lower interest rate and costs far less over its life. The trade-off is the monthly payment, which typically runs 45–50% higher. Change the term in the calculator to see both on your own numbers.
The case for the 30-year is flexibility rather than cost. A lower required payment leaves room to overpay in good months and to stop in bad ones, and voluntary extra payments capture much of the 15-year saving without locking you into it. If a 15-year payment would leave you unable to build an emergency fund or contribute to retirement, the 30-year is usually the more resilient choice even though it looks more expensive on paper. Our mortgage payoff calculator shows exactly what those extra payments would save.
What this calculator does not include
- Closing costs, typically 2–5% of the loan amount, paid once at purchase.
- Maintenance, which runs around 1% of the home's value a year and is the most commonly underestimated cost of ownership.
- Utilities, which are often materially higher than in a rental.
- Rate changes — the calculator assumes a fixed rate throughout, so it does not model an ARM after its initial period.