What goes into a mortgage payment
Lenders often talk about PITI: principal, interest, taxes and insurance. Principal and interest are the loan itself, a fixed amount every month on a fixed-rate mortgage. Property tax and homeowners insurance are usually collected by the lender along with the payment and held in an escrow account, then paid on your behalf when the bills come due. If you put down less than 20% on a conventional loan, private mortgage insurance (PMI) is added on top, and if the home is in a homeowners association, HOA dues are a further monthly cost even though they're normally paid to the association, not the lender.
That's why the payment quoted in ads is usually lower than what you'll actually pay. On the default numbers here, principal and interest are $2,275.44, but taxes, insurance and PMI bring the monthly total to $2,942.11.
How PMI works and when it ends
PMI protects the lender, not you, if you stop paying. It's typically quoted as an annual percentage of the loan amount and charged monthly. The rate depends mainly on your credit score and how much you put down, so get a quote rather than relying on a rule of thumb.
PMI on a conventional loan isn't permanent. Under the Homeowners Protection Act, you can ask your lender to cancel it once your balance is scheduled to reach 80% of the home's original value, and the lender must cancel it automatically when the balance is scheduled to reach 78%, provided you're current on payments. This calculator drops PMI at the 78% point. Extra principal payments get you there sooner, which is one of the better-paying reasons to prepay early in a loan. FHA loans are different: they charge a mortgage insurance premium that often lasts for the life of the loan.
What changes the payment most
The interest rate and the loan amount drive principal and interest. A one-point change in rate moves the payment far more than most people expect: $360,000 over 30 years costs $2,275.44 a month at 6.5% but $2,044.04 at 5.5%. A shorter term raises the monthly payment but cuts total interest sharply, because you borrow the money for less time.
Property tax rates vary widely between states and even between neighboring towns, so look up the actual rate for the address rather than using a national figure. Insurance varies with location, the age of the home and the coverage you choose; get a quote before you make an offer.
Using the result
Compare the total monthly payment, not just principal and interest, with your budget. Remember that the escrow part (taxes and insurance) is likely to rise over the years even though principal and interest stay fixed. The amortization table shows how slowly the balance falls at first: in the early years most of each payment is interest. Your lender's Loan Estimate will show the official figures, including closing costs, which aren't part of the monthly payment.
The mortgage payment formula
Principal & interest M = P × r ÷ (1 − (1 + r)^−n)Monthly payment = M + (price × tax rate ÷ 12) + (insurance ÷ 12) + PMI + HOAPMI = P × PMI rate ÷ 12, while the balance is above 78% of the original value- P = loan amount (home price minus down payment)
- r = annual interest rate ÷ 12, as a decimal (6.5% → 0.065 ÷ 12)
- n = number of monthly payments (30 years = 360)
Example: $400,000 home with 10% down
- Down payment: 10% of $400,000 = $40,000, so the loan is $360,000.
- Principal & interest at 6.5% for 30 years: r = 0.065 ÷ 12, n = 360, so M = $2,275.44.
- Property tax at 1.1%: $400,000 × 0.011 ÷ 12 = $366.67. Insurance: $1,800 ÷ 12 = $150.00.
- PMI at 0.5%: $360,000 × 0.005 ÷ 12 = $150.00 a month, because the down payment is under 20%.
- Total monthly payment: $2,275.44 + $366.67 + $150.00 + $150.00 = $2,942.11.
- The balance first falls below 78% of $400,000 ($312,000) with the 109th payment, so PMI is charged for 9 years 1 month: 109 × $150 = $16,350 in total.
- Over the full 30 years you'd pay $459,160 in interest.
Frequently asked questions
How much house can I afford?
A common starting point is the 28/36 rule: housing costs up to 28% of gross monthly income and all debt payments up to 36%. Lenders may approve more, but that doesn't mean the payment will be comfortable. The home affordability calculator works through it with your numbers.
Is it worth putting 20% down to avoid PMI?
Not always. PMI costs money, but waiting years to save 20% can cost more if prices or rents rise in the meantime, and draining your savings leaves no cushion for repairs. On the example above, PMI is $150 a month for 9 years 1 month, $16,350 in all — compare that with what waiting would cost you.
Should I choose a 15-year or 30-year mortgage?
A 15-year loan usually has a lower rate and costs far less interest overall, but the monthly payment is much higher. At 6.5% on $360,000, a 15-year payment is $3,135.99 against $2,275.44 for 30 years. Some people take the 30-year loan and prepay when they can, keeping the lower required payment as a safety net.
Why is my lender's payment different from this?
Lenders use the actual tax bill and insurance quote, may hold an escrow cushion, and quote PMI from your credit profile. Rounding and the first payment's timing can also differ. The Loan Estimate you receive after applying is the authoritative figure.
Do property taxes and insurance stay the same?
Rarely. Tax assessments and insurance premiums are reviewed regularly and tend to rise, and your lender will adjust the escrow part of your payment each year. Only principal and interest are fixed on a fixed-rate loan.
Sources
Last reviewed for 2026. How we calculate.