What makes up a mortgage payment
Lenders talk about PITI: Principal, Interest, Taxes, and Insurance. Principal and interest come from the amortization formula; taxes and insurance are usually collected monthly into an escrow account and paid on your behalf. If the property is in a managed community, HOA dues come on top.
Worked example
A $350,000 home with 20% down ($70,000) leaves a $280,000 loan. At 6.5% over 30 years, principal and interest come to $1,769.79/month. Adding $3,500/year of property tax and $1,500/year of insurance brings the real monthly outlay to about $2,186. Over 30 years, total interest alone is roughly $357,000 — more than the original loan.
Tips that change the math
- 20% down avoids PMI. With less than 20% down, most US lenders add private mortgage insurance of roughly 0.3–1.5% of the loan per year until you reach 20% equity.
- 15-year vs 30-year. The same loan at 6.5%/15yr costs $2,439/month but only ~$159,000 in interest — less than half the 30-year total.
- Rate shopping matters more than price haggling. On a $280,000 loan, 0.5% off the rate saves about $33,000 over 30 years.
Estimates only — actual payments depend on your lender, PMI, points, and closing costs. Not financial advice.
Frequently asked questions
How much house can I afford?
A common guideline is the 28/36 rule: housing costs under 28% of gross monthly income, and all debt payments under 36%. On a $8,000 gross monthly income that caps the full housing payment (including taxes and insurance) at about $2,240. Lenders also weigh credit score, down payment, and existing debt.
What is PMI and when do I pay it?
Private mortgage insurance protects the lender when your down payment is below 20%. It typically costs 0.3–1.5% of the loan amount per year and can be removed once you reach 20–22% equity. FHA loans have their own mortgage insurance rules that can last the life of the loan.
Should I choose a 15-year or 30-year mortgage?
A 30-year term gives a lower, safer monthly payment; a 15-year term roughly halves the total interest and builds equity much faster but demands a higher payment. Many buyers take the 30-year for flexibility and make extra principal payments when they can.
Do property taxes and insurance really belong in the payment?
Yes for budgeting. Most lenders escrow them: they collect 1/12 of the annual bills with each payment. Skipping them in your planning understates the real monthly cost by several hundred dollars in most areas.
What happens if I pay extra each month?
Extra payments go straight to principal, shortening the loan and cutting interest. An extra $200/month on the example above pays the loan off about 6 years early and saves roughly $87,000 in interest.