How mortgage payments work
Your total monthly mortgage payment consists of four components, known as PITI:
Principal + Interest
The core loan payment — calculated using the amortization formula based on loan amount, rate, and term
Property Tax
Annual property tax divided by 12 — typically 0.5%–2.5% of home value depending on location
Homeowners Insurance
Annual premium divided by 12 — protects against damage, theft, and liability
PMI (if <20% down)
Private mortgage insurance — required until you reach 20% equity
| Component | What It Covers |
|---|---|
| Principal + Interest | Loan repayment (fixed for fixed-rate mortgages) |
| Property Tax | 0.5%–2.5% of home value annually, escrowed monthly |
| Homeowners Insurance | ~$1,200–$2,400/year for average home |
| PMI | 0.3%–1.5% of loan/yr if down payment <20% |
Amortization explained
Amortization is how your loan balance decreases over time. With a fixed-rate mortgage, your monthly P&I payment stays the same, but the split between principal and interest shifts dramatically:
Early years: ~65% goes to interest, ~35% to principal. Later years: the ratio flips. Use the mortgage amortization calculator above — click "Calculate" then expand the year-by-year schedule to see the shift.
15 vs 20 vs 30 year comparison
Same $400,000 loan at 6.5% — see how loan term affects monthly payment and total interest:
| Term | Monthly P&I | Total Paid | Total Interest |
|---|---|---|---|
| 15 years | $3,484 | $627,197 | $227,197 |
| 20 years | $2,982 | $715,750 | $315,750 |
| 30 years | $2,528 | $910,178 | $510,178 |
How interest rate affects your payment
Even small rate differences have huge long-term impact. Here's a $400,000, 30-year loan at different rates:
| Rate | Monthly P&I | Total Interest |
|---|---|---|
| 5% | $2,147 | $373,023 |
| 5.5% | $2,271 | $417,616 |
| 6% | $2,398 | $463,353 |
| 6.5% | $2,528 | $510,178 |
| 7% | $2,661 | $558,036 |
| 7.5% | $2,797 | $606,869 |
A 1% rate increase on $400K adds ~$260/month and ~$93K in total interest over 30 years.
Down payment impact
A larger down payment means a smaller loan, lower monthly payments, and no PMI at 20%+. On a $500,000 home at 6.5%, 30 years:
| Down Payment | Loan Amount | Monthly P&I | PMI/mo |
|---|---|---|---|
| 5% ($25K) | $475,000 | $3,003 | $198 |
| 10% ($50K) | $450,000 | $2,845 | $188 |
| 20% ($100K) | $400,000 | $2,528 | $0 |
When PMI goes away
Under the Homeowners Protection Act, your lender must automatically cancel PMI. Use this as a PMI calculator to see the monthly impact when your loan balance reaches 78% of the original home value. You can also request cancellation at 80% LTV. On a $500K home with 10% down ($450K loan), PMI drops off when the balance hits $400K — typically around year 7–8 with normal payments.
Mortgage points explained
Mortgage points (discount points) (also called a mortgage points calculator feature) let you buy a lower interest rate. Each point costs 1% of the loan amount and typically reduces the rate by 0.25%:
Example: $400K loan at 6.5%. Buying 1 point costs $4,000 upfront and drops the rate to 6.25%. Monthly savings: ~$65. Break-even: $4,000 ÷ $65 = 61 months (~5 years). Worth it if you plan to stay 5+ years.
FAQs
How is a mortgage payment calculated?
Your monthly mortgage payment has four components (PITI): Principal (pays down the loan balance), Interest (cost of borrowing), Taxes (property tax, typically escrowed), and Insurance (homeowners + PMI if applicable). The P&I portion uses the amortization formula: M = P × [r(1+r)^n] / [(1+r)^n − 1], where P = principal, r = monthly rate, n = total months.
What is amortization?
Amortization is the process of paying off a loan through regular monthly payments over time. In early years, most of your payment goes toward interest. As the loan matures, more goes toward principal. On a 30-year $400K loan at 6.5%, you pay 65% interest in year 1 but only 5% interest in year 30. The amortization schedule above shows this shift year by year.
Is a 15-year or 30-year mortgage better?
A 15-year mortgage has higher monthly payments but saves massively on total interest. On a $400K loan at 6.5%: the 30-year costs $510,177 in interest vs. $227,214 for 15-year — saving $282,963. However, the 30-year payment is $2,528/mo vs. $3,484/mo for 15-year. Choose 15 if you can comfortably afford the higher payment; 30 if you need flexibility.
What is PMI (Private Mortgage Insurance)?
PMI is insurance that protects the lender (not you) when your down payment is less than 20%. It typically costs 0.3%–1.5% of the original loan amount per year, added to your monthly payment. On a $400K loan, PMI at 0.5% adds ~$167/month. PMI is automatically removed once you reach 20% equity (78% LTV based on original value, by law under the HPA).
How much down payment do I need for a house?
Minimum down payments vary by loan type: Conventional loans typically require 3–5% (but you'll pay PMI under 20%). FHA loans require 3.5%. VA loans and USDA loans offer 0% down for eligible borrowers. While 20% down eliminates PMI and gets you the best rates, most first-time buyers put down 6–10%. Use the down payment field above to see how it affects your payment.
What are mortgage points?
A mortgage point (or discount point) is a fee you pay upfront to lower your interest rate. One point costs 1% of the loan amount and typically reduces your rate by 0.25%. On a $400K loan, one point costs $4,000 and might drop your rate from 6.5% to 6.25%, saving $65/month. The break-even point is about 5 years — worth it if you plan to stay in the home longer.
How does credit score affect my mortgage rate?
Credit score significantly impacts your interest rate. A borrower with a 760+ score might get 6.25%, while a 660 score might get 7.5% — a 1.25% difference. On a $400K 30-year loan, that difference costs an extra $339/month or $122,000 over the loan life. Check your credit score and work on improving it before applying for a mortgage.
What is escrow?
An escrow account is managed by your mortgage servicer to collect and pay property taxes and homeowners insurance on your behalf. Instead of paying these large bills annually, you pay 1/12th each month as part of your mortgage payment. Your servicer then pays the tax and insurance bills when due. Escrow is typically required when your down payment is less than 20%.
Can I pay off my mortgage early?
Yes — most conventional mortgages allow prepayment without penalty. Extra payments go directly toward principal, reducing both the loan balance and total interest paid. Adding just $200/month to a $400K, 30-year, 6.5% mortgage saves about $98,000 in interest and pays off the loan 5 years early. Check your loan terms for any prepayment penalties before making extra payments.
What is a good mortgage rate in 2026?
As of early 2026, average 30-year fixed rates are in the 6.5%–7.0% range, and 15-year rates are around 5.8%–6.3%. Rates depend on your credit score, down payment, loan type, and market conditions. A rate below 6.5% for a 30-year fixed is considered good in the current market. Rates are expected to remain elevated compared to the historic lows of 2020–2021 (2.7%–3.5%).