What goes into a mortgage payment
A monthly mortgage payment usually has up to five parts. The first four are often shortened to PITI.
- Principal and interest: the loan payment itself, set by the loan amount, the interest rate, and the term.
- Property tax: your yearly tax bill divided by 12. Lenders usually collect it each month into an escrow account.
- Homeowners insurance: your yearly premium divided by 12, usually paid through escrow too.
- PMI: private mortgage insurance, which lenders usually require on a conventional loan with less than 20% down. The calculator charges it only while the loan is more than 80% of the home price.
- HOA dues: if the home is in a homeowners association. You usually pay these to the HOA directly, but they're part of what the home costs each month.
The interest rate starts near the recent national average for a 30-year fixed loan. Replace it with the rate you've been quoted for a closer estimate.
The formula
Principal and interest use the standard fixed-rate formula:
M = P × r × (1 + r)^n ÷ ((1 + r)^n − 1)
P is the loan amount (home price minus down payment), r is the yearly rate divided by 12, and n is the number of monthly payments (360 for 30 years). The rest is added on top: property tax ÷ 12, insurance ÷ 12, PMI (loan × PMI rate ÷ 12, only above 80% loan-to-value), and HOA dues.
Worked example
Say you buy a $400,000 home with 10% down ($40,000) at 7% for 30 years, with $4,400 a year in property tax and $2,400 a year for insurance:
- Loan amount: $360,000
- Principal and interest: $2,395
- Property tax: $4,400 ÷ 12 = $367
- Insurance: $2,400 ÷ 12 = $200
- PMI: $360,000 × 0.75% ÷ 12 = $225
That's about $3,187 a month. With 20% down ($80,000) instead, the loan drops to $320,000, PMI goes away, and the payment falls to about $2,696, or $491 less each month.
What this estimate leaves out
- Your real rate depends on your credit score, down payment, loan type, and any points you pay.
- Property tax varies a lot by county. The listing or the county assessor's site usually shows the current bill.
- FHA and VA loans handle mortgage insurance differently: FHA charges an upfront and a yearly premium, and VA charges a one-time funding fee instead of PMI.
- Closing costs and the cash you need at closing aren't part of the monthly payment. Your Loan Estimate lists them. Our guide to reading a Loan Estimate walks through each section.
Frequently asked questions
What does PITI stand for?
PITI stands for principal, interest, taxes, and insurance: the four parts of a typical monthly mortgage payment. If you pay PMI or HOA dues, add those on top to get your full monthly housing cost.
When do I have to pay PMI?
On a conventional loan, lenders usually require private mortgage insurance (PMI) when you put down less than 20%. It often costs roughly 0.3% to 1.5% of the loan per year, depending on your credit score and down payment. You can usually ask to cancel it once you owe 80% of the home's original value, and by law it ends on its own at 78% as long as your payments are current.
How much does a 1% lower rate change my payment?
On a $320,000, 30-year loan, going from 7% to 6% lowers principal and interest from about $2,129 to about $1,919 a month, a difference of about $210. Taxes and insurance don't change with the rate.
How does a 15-year loan compare to a 30-year loan?
A 15-year loan has a higher monthly payment but far less total interest. On a $320,000 loan at 7%, a 30-year term is about $2,129 a month and about $446,428 in interest over the life of the loan. A 15-year term at the same rate is about $2,876 a month and about $197,725 in interest. 15-year rates are usually a bit lower, which widens the gap.
Why is my lender's payment different from this estimate?
Lenders use your exact rate, your county's tax rate, your actual insurance quote, and their own escrow cushion, and may add points or fees. Page 1 of your Loan Estimate shows the lender's projected monthly payment. If it's far from this estimate, it's worth asking why.
When you have real offers
- Compare Loan EstimatesLine up two to four lenders' offers side by side and see which one really costs less.
- Audit your Closing DisclosureCheck your final numbers against your Loan Estimate before you sign.
- Spot mortgage junk feesThe charges that are most often padded, and what's normal.
- See a sample reportWhat a Mortgage Lens report looks like before you buy one.
More free calculators
- How much house can I afford?The home price that fits the 28/36 guideline, from your income, debts, and down payment.
- Refinance break-even calculatorYour new payment, when closing costs pay for themselves, and whether you come out ahead.
- Rent vs. buy calculatorWhich comes out ahead over the years you plan to stay, counting equity, upkeep, and investment returns.