A mortgage payment looks like one number, but it is built from several parts. Understanding them helps you compare loans, plan a budget and decide whether paying extra is worth it. Every figure below is generated with the same formulas used in our mortgage calculator, and the page will not build if the worked examples stop matching it.
The four parts of a payment (PITI)
- Principal: repays the amount you borrowed.
- Interest: the lender's charge for lending you the money.
- Taxes: property tax, often collected monthly and paid by your lender from an escrow account.
- Insurance: homeowners insurance, and mortgage insurance (PMI) if your down payment is small.
Some homes also have HOA dues, which are usually paid separately from the loan. The Consumer Financial Protection Bureau writes the total as principal + interest + mortgage insurance (if applicable) + escrow for homeowners insurance and tax, and notes that fees for a condo, co-op or homeowners' association are likely paid separately (CFPB: principal and interest versus your total monthly payment).
A full monthly payment, line by line
Take a $400,000 home at 6.5% for 30 years. With 20% down the loan is $320,000 and there is no mortgage insurance. With 5% down the loan is $380,000, and PMI is added. The property tax rate, insurance and PMI rate below are placeholders for illustration, not averages. Yours will differ.
| Monthly cost | 20% down | 5% down |
|---|---|---|
| Principal and interest | $2,022.62 | $2,401.86 |
| Property tax (1.1% a year) | $366.67 | $366.67 |
| Homeowners insurance ($1,800 a year) | $150.00 | $150.00 |
| PMI (0.5% of the loan a year) | $0.00 | $158.33 |
| Total | $2,539.28 | $3,076.86 |
The smaller down payment costs $538 more every month, and not only because the loan is bigger: PMI is an extra line that the 20% down buyer does not pay.
How principal and interest are calculated
For a fixed-rate loan the principal-and-interest payment stays the same every month. It is set so that after the last payment the balance is exactly zero. The formula is P × r ÷ (1 − (1 + r)−n), where P is the amount borrowed, r is the monthly interest rate (the yearly rate divided by 12) and n is the number of payments.
Worked example, by hand: $320,000 at 6.5% for 30 years
- Monthly rate: r = 6.5 ÷ 100 ÷ 12 = 0.005417. Number of payments: n = 30 × 12 = 360.
- Growth factor: (1 + r)−360 ≈ 0.14302, so 1 − that = 0.85698.
- Payment = $320,000 × 0.005417 ÷ 0.85698 = $2,022.62.
Result: borrowing $320,000 at 6.5% for 30 years gives a payment of $2,022.62 for principal and interest. Over 360 payments that adds up to $728,142, of which $408,142 is interest.
Why early payments are mostly interest
Interest is charged on the balance you still owe. In the first month of the loan above, the interest is $1,733.33 (that is $320,000 × 0.005417) and only $289.28 goes to principal. After ten years of on-time payments you will have repaid about $48,716 of principal, and your balance will still be about $271,284. Over time the balance shrinks, interest falls and more of each payment reduces principal. The Consumer Financial Protection Bureau describes the same pattern, and calls the table of principal and interest for every payment an amortization schedule. It also points out that the part of your payment going to interest does not reduce your balance or build equity, so the equity you build is much less than the sum of your payments (CFPB: how does paying down a mortgage work?).
| After | Balance left | Principal repaid so far | Interest paid so far | Principal share of that year's payments |
|---|---|---|---|---|
| 1 year | $316,423 | $3,577 | $20,695 | 15% |
| 5 years | $299,555 | $20,445 | $100,912 | 19% |
| 10 years | $271,284 | $48,716 | $193,998 | 26% |
| 15 years | $232,189 | $87,811 | $276,260 | 37% |
| 20 years | $178,129 | $141,871 | $343,557 | 51% |
| 25 years | $103,373 | $216,627 | $390,159 | 70% |
| 30 years | $0 | $320,000 | $408,142 | 97% |
Principal first becomes larger than interest in month 233, about 19 years and 5 months into the loan. That is why the first years feel slow, and why anything that lowers the balance early, such as a bigger down payment or extra payments, is worth more than the same money later.
How the rate and the term change the payment
The same $320,000, borrowed for 30 years at different rates:
| Interest rate | Monthly principal and interest | Total interest over 30 years |
|---|---|---|
| 5.5% | $1,816.92 | $334,093 |
| 6% | $1,918.56 | $370,682 |
| 6.5% | $2,022.62 | $408,142 |
| 7% | $2,128.97 | $446,428 |
| 7.5% | $2,237.49 | $485,495 |
Each half-point on the rate moves the payment by roughly $106 a month here, and the total interest by about $38,286, which is why comparing lenders on the same day is worth the effort.
A shorter term raises the payment but cuts the interest. The CFPB says shorter loan terms generally save money overall but have higher monthly payments, and that a shorter term usually comes with a lower rate (CFPB: understand the different kinds of loans available). For illustration only, assume a 15-year loan is priced half a point lower, at 6%:
| 30 years at 6.5% | 15 years at 6% | |
|---|---|---|
| Monthly principal and interest | $2,022.62 | $2,700.34 |
| Total interest | $408,142 | $166,062 |
| Total paid | $728,142 | $486,062 |
The 15-year loan costs $678 more each month and saves $242,081 of interest. Whether that trade is right depends on how comfortable the higher payment is. Try your own rates in the 15 vs 30 year mortgage calculator.
Fixed-rate or adjustable-rate?
The CFPB puts it simply: with a fixed-rate mortgage the interest rate is set when you take out the loan and will not change, while with an adjustable-rate mortgage (ARM) the rate may go up or down. Many ARMs start at a lower rate that stays the same for a period, and when that introductory period ends the rate changes at regular intervals and the payment is likely to go up if the underlying index rises (CFPB: fixed-rate versus adjustable-rate mortgages). Everything in this guide, and our mortgage calculator, assumes a fixed rate.
What PMI is and when it ends
Private mortgage insurance is common on conventional loans with less than 20% down. It protects the lender. According to the CFPB, you have the right to ask your servicer to cancel it on the date your balance is scheduled to fall to 80% of the home's original value, and in general the servicer must end it automatically on the date the balance is scheduled to reach 78%, as long as you are current on your payments. Loans backed by the FHA or the Department of Veterans Affairs have different requirements. See the CFPB's page, When can I remove private mortgage insurance (PMI) from my loan?
In the 5% down example above, on the original schedule the balance reaches 80% of $400,000 (that is $320,000) in month 124, about 10 years and 4 months in, and 78% ($312,000) in month 135. At $158.33 a month, PMI up to the automatic end would add up to about $21,375. These dates come from the original schedule, so check your own loan documents and ask your servicer for the exact dates.
The power of extra payments
Extra money sent to principal lowers the balance that interest is charged on. On the $320,000 loan at 6.5%, here is what a fixed extra amount each month does:
| Extra each month | Loan ends after | Time saved | Interest saved |
|---|---|---|---|
| None | 30 years | - | - |
| $100 | 26 years and 2 months | 3 years and 10 months | $61,698 |
| $200 | 23 years and 5 months | 6 years and 7 months | $105,429 |
| $500 | 18 years | 12 years | $185,552 |
Paying an extra $200 a month saves about $105,429 in interest and finishes the loan 6 years and 7 months early. Two cautions. First, tell your servicer that the extra should go to principal, and check afterwards on your statement that it did. Second, check your loan for a prepayment penalty. The CFPB says a prepayment penalty typically applies only if you pay off the entire balance within a set number of years, usually three or five, and in some cases if you pay off a large amount at once. It does not normally apply to extra principal paid in small amounts, but it is always a good idea to double check with the lender (CFPB: what is a prepayment penalty?).
Taxes and insurance keep moving
Your principal-and-interest payment on a fixed-rate loan generally stays the same, but the escrow part can change. The CFPB gives the example that if your home increases in value, your property taxes typically increase as well. Suppose, purely as an illustration, that both the tax bill and the insurance premium in our 20% down example grow 3% a year. Tax would go from $366.67 to about $492.77 a month after ten years, and insurance from $150.00 to about $201.59. The total would then be about $2,716.97 instead of $2,539.28, even though the loan payment did not move. When you budget, leave room for that drift.
Ways to keep the cost down
- Compare several lenders on the same day, and look at APR as well as rate.
- Save a larger down payment to reduce the loan and avoid PMI.
- Choose a shorter term if the higher payment is comfortable.
- Review property tax and insurance each year, since both can rise.
- Read your Loan Estimate line by line (see our guide to reading a Loan Estimate).
Common mistakes to avoid
- Budgeting only for principal and interest. In the example above, tax, insurance and PMI add $675 a month to the 5% down payment.
- Comparing lenders on payment alone. A lower payment can hide a longer term or higher fees. Compare the total cost over the years you expect to keep the loan.
- Assuming extra payments are applied to principal. Confirm it with your servicer.
- Forgetting that the rate is not the APR. The rate sets the payment. The APR folds in some fees and is better for comparing offers.
- Stretching to the maximum a lender approves. Approval is not the same as comfortable. See what price fits your income in the house affordability calculator.
Run your own numbers
Use the mortgage calculator for the full monthly payment, or the house affordability calculator to see what price fits your income. To estimate the cash you need at closing, try the closing cost calculator.
Sources and review
The payment formula is the standard fixed-rate amortization formula, tested against closed-form results. From the Consumer Financial Protection Bureau: removing PMI, amortization, how paying down a mortgage works, principal and interest versus the total payment, fixed-rate and adjustable-rate loans, prepayment penalties and loan terms. To compare offers, use the CFPB's guide to requesting and reviewing multiple Loan Estimates. The property tax rate, insurance, PMI rate, the 15-year rate and the 3% yearly growth in the examples are placeholders for illustration, not averages. Last reviewed September 2026. See our methodology. This is general information, not financial advice.