Mortgage payment guide
Reviewed 2025-06-24What your monthly mortgage payment actually includes
The mortgage payment quoted in most advertisements and online listings is the principal and interest (P&I) component only — the amount that pays down your loan balance and services the interest. Your real monthly payment is larger because it includes three additional costs that lenders require: property taxes, homeowners insurance, and HOA dues if applicable. This combined payment is known as PITI (Principal, Interest, Taxes, Insurance).
Property taxes are collected monthly into an escrow account and paid to your local government annually. They vary enormously by state — from 0.32% of home value annually in Hawaii to 2.47% in New Jersey. On a $400,000 home, that range translates to $107/month versus $823/month in property tax alone. This calculator includes property taxes in the monthly total when you enter the annual amount.
Homeowners insurance is similarly escrowed and averages approximately $1,400–$2,000/year nationally, though coastal properties, high-wind zones, and areas prone to flooding or wildfire can see dramatically higher premiums. For budgeting purposes, enter your specific insurance quote or use $1,500–$1,800 as a conservative estimate for an inland property.
PITI vs. P&I: real example
A $400,000 home with 20% down at 7% (30-year): P&I = $2,129/month. Add Texas property taxes ($600/month at 1.8%) and insurance ($125/month) and the real payment is $2,854 — 34% higher than the headline number.
How amortization works — and why early payments are mostly interest
A standard mortgage uses an amortizing payment schedule: each monthly payment is the same dollar amount, but the split between principal (balance reduction) and interest (lender profit) shifts over time. In the early years, the vast majority of your payment is interest. In the final years, nearly all of it is principal.
On a $320,000 loan at 7% over 30 years, your first payment of $2,129 breaks down as approximately $1,867 in interest and only $262 in principal. By year 15, the split is roughly $1,400 interest and $729 principal. By year 28, you are paying more principal than interest for the first time. This is why making extra principal payments in the early years of a mortgage is so powerful — each extra dollar eliminates future interest charges that are magnified by compound interest.
The total interest paid on a 30-year loan is typically 75–85% of the original loan amount at current rates. A $320,000 mortgage at 7% results in approximately $452,000 in total interest over 30 years — more than the loan itself. Refinancing when rates fall significantly, making extra payments, or choosing a 15-year term can reduce this cost dramatically.
The 28/36 rule: how lenders determine your maximum mortgage
The 28/36 rule is the primary qualifying standard for conventional mortgage loans in the US. It establishes two debt-to-income ratios that your proposed mortgage must satisfy. The front-end ratio caps your total housing payment (PITI) at 28% of gross monthly income. The back-end ratio caps all monthly debt payments — housing plus car loans, student debt, credit cards, and other recurring obligations — at 36%.
If your household earns $10,000/month gross, the 28% front-end cap limits your housing payment to $2,800. If you carry $600/month in car and student loan payments, the back-end cap limits total debt to $3,600 — leaving $3,000 for housing. In this case, the back-end constraint binds: your maximum mortgage payment is $3,000, not $2,800.
Fannie Mae and Freddie Mac conforming loan guidelines allow back-end DTI up to 45% with compensating factors (high credit score, cash reserves, large down payment). FHA loans allow up to 43% back-end DTI. But the 28/36 thresholds remain the benchmark for standard approval at the best rates and terms. The Affordability tab above calculates your maximum home price using this rule.
Use the Affordability tab first
If you don't have a specific home in mind yet, click the Affordability tab and enter your income, debts, and down payment. This gives you your maximum price before you start browsing — preventing the costly mistake of falling in love with a home you cannot finance.
Choosing between a 30-year and 15-year mortgage
The choice between a 30-year and 15-year mortgage is one of the most significant financial decisions in the homebuying process. The 30-year mortgage offers a lower monthly payment and more cash flow flexibility; the 15-year offers a lower interest rate and dramatically lower total cost.
On a $320,000 loan, current rate differentials typically place 15-year rates 0.5–0.75% below 30-year rates. At 7.0% (30-year) vs. 6.25% (15-year): the 30-year payment is $2,129/month; the 15-year payment is $2,748/month. The 30-year costs $452,000 in total interest; the 15-year costs $174,600 — a difference of $277,000. The 15-year mortgage is paid off in half the time and costs $277,000 less, but requires $619 more per month.
The right choice depends on your income stability, other financial priorities, and whether the $619/month difference would be invested productively. If you can earn more than 6.25% annually on the freed-up cash flow, the 30-year is mathematically superior on a net present value basis. If the money would sit in a savings account, the 15-year wins clearly. Most financial planners recommend the 30-year if you have high-interest debt to pay off, a small emergency fund, or are early in your career with income growth ahead.
PMI, down payment, and the true cost of buying below 20%
Private Mortgage Insurance (PMI) is required on conventional loans when your down payment is less than 20% of the purchase price. It protects the lender — not you — against default, and it adds 0.5–1.2% of the loan balance annually to your payment. On a $360,000 loan (10% down on $400,000), PMI costs $150–$360/month and provides no direct benefit to the borrower.
FHA loans offer a 3.5% minimum down payment but require Mortgage Insurance Premiums (MIP) that are structured differently and often more expensive long-term than conventional PMI. Conventional PMI can be cancelled once you reach 20% equity; FHA MIP on loans with less than 10% down is permanent for the life of the loan (for loans originated after 2013), making it significantly more expensive over a 30-year term.
The threshold analysis: buying a $400,000 home with 10% vs. 20% down saves $40,000 upfront but costs approximately $250/month in PMI for 8+ years — totaling $24,000 in PMI alone, plus the higher loan balance accrues more interest. The break-even is complex and depends on your opportunity cost for the $40,000. If your alternative to the extra down payment is paying off 24% APR credit card debt, save for the larger down payment first.