How your mortgage payment is calculated
A typical monthly mortgage payment has four parts, often called PITI:
- Principal — repays the amount you borrowed.
- Interest — the lender's charge for the loan.
- Taxes — property tax, usually collected monthly into an escrow account.
- Insurance — homeowners insurance, plus PMI if your down payment is under 20% on a conventional loan.
The principal-and-interest part uses the standard amortisation formula:
where L is the loan amount, r the monthly rate (APR ÷ 12) and n the number of payments. A $320,000 loan at 6.5% for 30 years gives a principal-and-interest payment of about $2,023; with taxes and insurance the full payment is about $2,540.
How much house can I afford?
A common guideline is the 28/36 rule: spend no more than 28% of gross monthly income on housing and no more than 36% on all debts combined. Lenders also look at your credit score, savings and job history.
Ways to lower your monthly payment
- Put 20% down to avoid PMI and borrow less.
- Improve your credit score — even 0.5% lower APR saves tens of thousands over 30 years.
- Shop several lenders and compare Loan Estimates, including fees and points.
- Consider a 15-year loan if you can afford it: higher payment, but a lower rate and far less total interest.
- Appeal your property tax assessment and shop around for insurance.
When does PMI go away?
On conventional loans you can ask to cancel PMI once your balance reaches 80% of the home's original value, and it ends automatically at 78%. FHA loans have their own mortgage insurance rules. The calculator includes PMI in the current monthly payment if your down payment is below 20%.
Frequently asked questions
What is included in a mortgage payment?
Usually principal, interest, property tax and homeowners insurance (PITI), plus PMI if you put down less than 20% and HOA fees if your community has them.
How much is property tax?
It varies by location, typically between about 0.3% and 2.5% of the home's value per year in the US. Check your county's rate for an accurate estimate.
Is a 15-year or 30-year mortgage better?
A 30-year loan has lower monthly payments. A 15-year loan costs much less interest overall and usually has a lower rate, but needs a higher monthly payment.
Does this calculator work outside the US?
Yes for the loan payment itself. For loans in India, the EMI calculator also shows a year-by-year schedule in rupees.
