A mortgage payment has up to five parts. Knowing them helps you work out what a home really costs each month.
The five parts
- Principal and interest. This pays back the loan and the lender's charge for lending. It stays the same for the life of a fixed-rate loan.
- Property tax. A share of the home's value each year, set by local government.
- Home insurance. The yearly premium, usually paid monthly.
- Mortgage insurance (PMI). Often charged if you put down less than 20%.
- HOA fees. If the home belongs to an association.
Lenders often collect tax and insurance with your payment into an escrow account and pay the bills for you.
A worked example
A $300,000 loan at 6% for 30 years.
| Amount | |
|---|---|
| Monthly principal and interest | $1,799 |
| Total paid over 30 years | about $647,515 |
| Interest paid | about $347,515 |
That is more than the loan itself. Try your own numbers in the mortgage payment calculator.
Why early payments are mostly interest
Interest is charged on what you still owe. At the start you owe a lot, so most of each payment is interest. In the first month of the example, about $1,500 of the $1,799 is interest. Over the years, the balance falls, so more goes to the loan.
Extra payments
Extra money goes straight to the balance. In the example, paying an extra $200 a month cuts the loan from 30 years to about 23 years and 3 months, and saves about $91,000 in interest. Check with your lender that extra payments go to the principal and that there is no penalty.
15 years or 30 years?
A 15-year loan has a higher payment but far less interest overall. A 30-year loan has a lower payment and more flexibility. Choose what your budget can handle.
PMI
With less than 20% down, lenders often add PMI until you own enough of the home, which lenders generally must end automatically when you owe 78% of the original value, and you can ask to end at 80%. Ask your lender for the rate and the rules.
Before you buy
- Compare quotes from several lenders.
- Plan for closing costs and repairs, which the calculator does not include.
- Check what you can afford with the take-home pay calculator.
This is general information, not financial advice.
Mortgage payment calculator See your monthly payment and total interest.This article is for education and is not financial, tax or legal advice. Figures are checked against the sources above and may change. Read the full disclaimer.