What goes into a mortgage payment
Lenders often call the full payment PITI: principal, interest, taxes, and insurance. Many buyers also pay PMI and HOA dues on top.
- Principal and interest pay down the loan. Early payments are mostly interest; later payments are mostly principal.
- Property tax varies widely by state and county. Check your county assessor's site for the local rate.
- Homeowners insurance is usually required by the lender and is often paid through an escrow account.
- PMI (private mortgage insurance) is usually required on conventional loans with less than 20% down. It typically ends once you reach 20% to 22% equity.
- HOA dues apply to many condos and planned communities.
The formula
P is the loan amount, r is the monthly interest rate (annual rate ÷ 12), and n is the number of monthly payments. A $320,000 loan at 6.5% for 30 years works out to about $2,022.62 a month in principal and interest.
How much house can you afford?
A common rule of thumb is the 28/36 rule: keep housing costs under 28% of gross monthly income and total debt payments under 36%. Lenders use their own limits, so treat it as a starting point.
Frequently asked questions
Is a 15-year or 30-year mortgage better?
A 15-year loan usually has a lower rate and costs far less interest overall, but the monthly payment is higher. A 30-year loan keeps payments lower and leaves more room in your budget. Compare both in the calculator above.
How can I avoid PMI?
Put at least 20% down, or look at loan programs that don't charge monthly mortgage insurance. Once you have PMI, you can usually ask to remove it when your balance reaches 80% of the home's original value.
Does this include closing costs?
No. Closing costs are paid once at closing and are often a few percent of the loan amount. They don't change your monthly payment unless you roll them into the loan.