Understanding Your Mortgage Payment
Your monthly mortgage payment consists of PITI: Principal, Interest, Taxes, and Insurance. Principal pays down your loan balance. Interest is the lender's charge for borrowing. Property taxes and homeowners insurance are typically collected monthly via escrow.
How Monthly Payments Work
With a fixed-rate mortgage, your payment stays constant, but the allocation between principal and interest changes. Early on, most goes to interest. For a $250,000 loan at 6.5%, the first payment includes ~$1,354 interest and ~$226 principal. By year 15, it's roughly equal. By the end, nearly all goes to principal.
Loan Term Comparison: 15 vs 30 Years
30-year mortgage: Lower monthly payments, more total interest. 15-year mortgage: Higher monthly payments, dramatically less interest. Example: $300,000 at 6.5% costs ~$1,896/month (30-year, $382,000 total interest) vs ~$2,613/month (15-year, $170,000 total interest)—saving over $200,000.
Down Payments and PMI
Larger down payments reduce borrowing costs and monthly payments. Put down 20%+ to avoid PMI (private mortgage insurance), which costs 0.5–1% of loan amount annually. PMI can be removed once you reach 20% equity through payments and appreciation.
Property Tax Variations by State
Property taxes vary widely: New Jersey averages 2.4% ($7,200 annually on a $300,000 home), while Hawaii averages 0.27% ($810 annually). Research local tax rates when house hunting—they significantly impact affordability. Property taxes are tax-deductible (up to $10,000 when itemizing)—use our federal income tax calculator to see how homeownership affects your tax liability.
Insurance Requirements
All lenders require homeowners insurance covering dwelling replacement cost, personal property, and liability. Homes in flood zones need flood insurance. Hurricane, earthquake, and wildfire coverage may require separate policies in high-risk areas.
Fixed-Rate vs Adjustable-Rate
This calculator assumes a fixed-rate mortgage (constant rate throughout). ARMs start with lower rates but adjust periodically based on market conditions (common: 5/1, 7/1, 10/1). ARMs suit buyers planning to sell/refinance before adjustment. Fixed-rate provides predictable payments.
Extra Payments Impact
Extra principal payments reduce total interest and shorten loan terms. Adding $100 monthly to a $250,000, 30-year loan at 6.5% saves ~$60,000 in interest and pays off the loan 7 years early. Verify your lender applies extra payments to principal, not future payments.