Principal & Interest (P&I): The core of your monthly mortgage payment. Principal is the loan amount you borrow; Interest is what the lender charges for borrowing that money. Standard amortization means early payments are mostly interest, gradually shifting to mostly principal. On a $320,000 loan at 6.5% for 30 years, your first payment might be $1,733 interest + $289 principal, while your final payment is $11 interest + $2,011 principal.

Taxes & Insurance: Most lenders require you to escrow (prepay monthly) property taxes and homeowners insurance. The lender holds these funds and pays the bills when due. Example: $4,000 annual property tax + $1,200 insurance = $433/month added to your payment. Some borrowers opt out of escrow (if LTV < 80% and lender allows) to manage cash flow themselves, but risk missing payments and triggering lender force-placed insurance.

APR vs Interest Rate: Your interest rate determines the P&I payment. APR (Annual Percentage Rate) includes the interest rate PLUS origination fees, points, and other closing costs, expressed as a yearly rate to reflect the true cost of borrowing. Example: 6.5% interest rate with 1% origination fee and 1 discount point might have a 6.8% APR. Always compare APRs when shopping for mortgages, as a loan with a lower rate but higher fees can have a higher APR.

Fixed vs Adjustable-Rate Mortgages (ARM): Fixed-rate loans (30-year, 20-year, 15-year, 10-year) maintain the same interest rate for the entire term, providing payment stability. ARMs (5/1, 7/1, 10/1) have a fixed rate for an initial period (5, 7, or 10 years), then adjust annually based on a market index + margin. ARMs start with lower rates but carry uncertainty; they're best if you plan to sell or refinance before the adjustment period. Fixed-rate loans are safer for long-term homeownership.

PMI (Private Mortgage Insurance): Required when your Loan-to-Value (LTV) ratio exceeds 80% (down payment < 20%). PMI protects the lender if you default and typically costs 0.3–1.5% of the loan amount annually. Example: $320,000 loan with 0.5% PMI = $1,600/year ($133/month). PMI automatically cancels when LTV reaches 78% (via payments + home appreciation), or you can request removal at 80% LTV. To avoid PMI: make a 20%+ down payment, use a piggyback loan (80-10-10), or opt for lender-paid PMI (higher interest rate).

Escrow Pros & Cons: Pros: Budgeting simplicity (one payment covers everything), no risk of missing tax/insurance deadlines, lenders may require it for LTV > 80%. Cons: Escrow account earns no interest, annual escrow analysis can increase payments if taxes/insurance rise, less control over cash flow. Some borrowers prefer paying taxes/insurance directly to invest the cash or take advantage of early-pay discounts.

Step 1: Enter your home price and down payment (as a dollar amount or percentage). The calculator auto-fills the loan amount (home price minus down payment). Example: $400,000 home with $80,000 (20%) down = $320,000 loan. If you already know your loan amount, you can enter it directly.

Step 2: Set your interest rate (annual percentage), loan term (30-year, 20-year, 15-year, 10-year, or custom), loan type (fixed or ARM), and start date. Choose compounding frequency (monthly is standard for most mortgages). Your interest rate determines P&I; for ARMs, use the initial fixed rate.

Step 3: Add property tax (annual amount or as a percentage of home price; typical range: 0.5–2.5% of home value depending on location). Enter homeowners insurance (annual cost; typically $800–$2,000+ depending on home value and location). If your down payment is less than 20%, toggle auto-calculate PMI or enter a custom PMI rate (0.3–1.5% annually). Add HOA dues if applicable (monthly or annual).

Step 4: (Optional) Enter discount points (prepaid interest to lower your rate; 1 point = 1% of loan amount, typically reduces rate by 0.25%) and closing costs (origination fee, appraisal, title insurance; typically 2–5% of loan amount). Toggle "Include closing costs in loan" if you're rolling them into the principal (increases loan balance but reduces upfront cash needed).

Step 5: Add extra payments to see their impact: enter a fixed monthly extra amount (e.g., $200/month applied to principal), or add a one-time extra payment with a specific date (like a tax refund or bonus). Extra payments dramatically reduce total interest and shorten the payoff date. Always ensure extra payments are applied to principal, not future payments.

Step 6: Click "Calculate" to view your total monthly payment (P&I + taxes + insurance + PMI + HOA), payment breakdown (donut chart showing proportions), total interest, payoff date, effective APR, and amortization schedule. Use the Balance Trend chart to visualize how your principal declines over time. Download the amortization table as CSV or PDF for detailed per-payment breakdowns.

Step 7: Compare scenarios: test 30-year vs 15-year terms, evaluate buying points (calculate break-even: points cost ÷ monthly savings = months to recoup), compare fixed vs ARM rates, or see how extra payments change your payoff timeline. Use the results to make informed decisions about down payment size, loan term, and payment strategies.

Increase your down payment: A larger down payment reduces your loan principal, lowering monthly P&I. More importantly, 20%+ down eliminates PMI (saving $100–300+/month). Example: On a $400,000 home, 10% down ($40,000) results in a $360,000 loan with PMI; 20% down ($80,000) results in a $320,000 loan with no PMI. The $40,000 additional down payment saves ~$160/month in PMI and reduces P&I by ~$250/month at 6.5%, totaling $410/month savings. If you can't reach 20%, every percentage point closer reduces PMI and interest.

Buy discount points (only when it makes sense): Paying points upfront lowers your interest rate (1 point = 1% of loan, typically reduces rate by 0.25%). Calculate break-even: divide points cost by monthly savings. Example: On a $320,000 loan, 1 point costs $3,200 and reduces rate from 6.5% to 6.25%, saving ~$50/month. Break-even = $3,200 ÷ $50 = 64 months (5.3 years). Buy points ONLY if you plan to stay in the home longer than the break-even period. Points make more sense with larger loans, higher rates, and long-term ownership.

Refinance when rates drop: Refinancing to a lower rate can reduce monthly payments or shorten the term. Rule of thumb: refinance if you can lower your rate by at least 0.75–1% and closing costs are recouped within 2–3 years. Example: Refinancing a $300,000 balance from 6.5% to 5.5% saves ~$180/month; if closing costs are $6,000, break-even is 33 months. Consider cash-out refinancing to consolidate high-interest debt, but avoid extending the term excessively, as this increases total interest. Use a refinance calculator to model scenarios before committing.

Make extra principal payments: Even $100–200/month extra can shave years off your mortgage and save tens of thousands in interest. Example: On a $320,000 loan at 6.5% for 30 years, adding $200/month reduces the term by 6 years and saves ~$80,000 in interest. Extra payments are most effective early in the loan term when the principal balance is highest. Always specify that extra payments apply to principal, not advance the due date. One-time windfalls (bonuses, tax refunds) can also accelerate payoff.

Choose a shorter term (15-year vs 30-year): 15-year mortgages have lower interest rates (typically 0.5–0.75% lower than 30-year) and build equity faster, but monthly payments are higher. Example: $320,000 at 6.5% for 30 years = $2,022/month; at 5.75% for 15 years = $2,661/month ($639 more). Total interest: 30-year = $407,000; 15-year = $159,000 (savings of $248,000). Choose 15-year if you can afford the higher payment and prioritize wealth-building; choose 30-year for flexibility and lower monthly obligation (you can always pay extra to mimic a 15-year schedule).

Compare escrow vs self-pay: If your LTV is below 80% and your lender allows it, you can waive escrow and pay property taxes and insurance directly. Pros: You control the cash and can invest it or earn interest; some jurisdictions offer early-pay discounts on property taxes. Cons: You must budget and save monthly; missing payments can trigger lender force-placed insurance (expensive) or tax liens. Most borrowers prefer escrow for simplicity and peace of mind, but disciplined savers may benefit from managing their own funds.

The standard mortgage payment formula calculates the fixed monthly principal and interest (P&I) payment that fully amortizes your loan over the specified term. This formula is the foundation of all fixed-rate mortgages.

15-Year Comparison: Same loan at 5.75% (15-year rate, typically 0.5-0.75% lower) = $2,661/month P&I, $159,000 total interest—saving $248,920 vs 30-year but requiring $639/month more in payments. Choose based on your cash flow and financial goals: lower payment (30-year) vs faster equity building (15-year).

First-Time Homebuyer Deciding Between 30-Year and 15-Year Terms: Emily is buying a $350,000 home with $70,000 down ($280,000 loan). At 6.5% for 30 years, her P&I = $1,770/month; at 5.75% for 15 years, P&I = $2,330/month ($560 more). Total interest: 30-year = $357,200; 15-year = $139,400 (saves $217,800). Emily chooses the 30-year for flexibility and plans to make $300/month extra payments, effectively creating a ~22-year payoff while retaining the option to reduce payments if her budget tightens.

Homeowner Evaluating Whether to Buy Discount Points: Carlos is refinancing a $400,000 loan at 6.75%. The lender offers 6.5% with 1 point ($4,000) or 6.25% with 2 points ($8,000). At 6.5%, he saves $60/month vs 6.75% (break-even: 67 months). At 6.25%, he saves $120/month (break-even: 67 months for the second point). Carlos plans to stay 10+ years, so he buys 1 point, saving $7,200 over 10 years ($60/month × 120 months - $4,000 cost).

Couple Comparing PMI vs 80-10-10 Piggyback Loan: Sarah and Mike are buying a $400,000 home but only have $40,000 (10% down). Option A: $360,000 loan with 0.5% PMI = $150/month PMI + $2,275 P&I at 6.5% = $2,425 total. Option B: 80-10-10 structure—$320,000 first mortgage at 6.5% ($2,022), $40,000 second mortgage (HELOC) at 8.5% ($368), no PMI = $2,390 total. The piggyback saves $35/month and avoids PMI, but the second mortgage has a higher rate and potential for rate adjustments (if variable). They choose the piggyback to avoid PMI and pay off the HELOC aggressively in 5 years.

Homeowner Deciding When to Refinance: Lisa has a $300,000 balance at 7% (27 years left, $1,996/month). Rates drop to 5.5%, and a lender offers refinancing for $6,000 closing costs. New payment at 5.5% for 25 years = $1,841/month (saves $155/month). Break-even: $6,000 ÷ $155 = 39 months (3.25 years). Lisa plans to stay 10+ years, so refinancing saves $18,600 over 10 years ($155 × 120 months - $6,000 cost). She refinances and maintains her $1,996 payment, applying $155/month extra to principal, paying off in 19 years instead of 25.

Young Couple Maximizing Extra Payments to Build Equity Fast: Jake and Amy have a $250,000 loan at 6.25% for 30 years ($1,539/month). They budget an extra $400/month toward principal. The calculator shows this cuts the term to 16 years and saves $122,000 in interest. After 5 years of extra payments, their balance is $195,000 instead of $233,000 (standard schedule), building $38,000 extra equity. They use this equity to fund a home renovation via a HELOC at a lower rate than credit card debt.

Retiree Considering Paying Off Mortgage vs Investing: Robert, 63, has $150,000 left on his mortgage at 4.5% (10 years remaining, $1,555/month). He inherits $150,000 and debates paying off the mortgage vs investing. Paying off saves $36,600 in interest over 10 years and eliminates a monthly bill, providing psychological peace. Investing at 7% average return (conservative portfolio) would grow to $295,000 in 10 years. Robert chooses a hybrid: pays off half the mortgage ($75,000), reducing payment to $778/month, and invests the other $75,000, balancing security and growth.

Self-Employed Borrower Structuring Payments Around Irregular Income: Maria's income is seasonal (high in Q4, low in Q1-Q2). She has a $320,000 loan at 6.5% ($2,022/month). She makes minimum payments in Q1-Q2 and adds $1,000/month extra in Q4 (3 months = $3,000 total). This approach saves $9,200 in interest over 10 years and cuts 2 years off the term, while respecting her cash flow constraints. She maintains a 6-month reserve fund to cover Q1-Q2 payments comfortably.

Investor Comparing Primary Residence Mortgage vs Rental Property Financing: David has $100,000 to invest. Option A: Buy a $500,000 primary residence with $100,000 down (20%), $400,000 loan at 6.5%, $2,528 P&I. Option B: Buy a $300,000 rental property with $60,000 down (20%), $240,000 loan at 7.5% (investment property rates higher), $1,678 P&I, plus keep $40,000 cash. The rental generates $2,400/month income, covering the mortgage plus $722 cash flow. David chooses Option B for the income stream and retained liquidity, building wealth through rental property appreciation and cash flow.

Homeowner Using Extra Payments to Remove PMI Early: Jennifer bought a $300,000 home with 10% down ($30,000), leaving a $270,000 loan at 6.75% with 0.6% PMI ($135/month). Her payment = $1,751 P&I + $135 PMI = $1,886. She adds $300/month extra to principal. After 3 years, her balance drops to $233,000, and her home appreciates to $330,000. LTV = 70.6% (< 78%), so PMI auto-cancels, saving $135/month. The extra payments accelerated PMI removal by 4 years, saving $6,480 total PMI cost.

Couple Planning Mortgage Payoff Before Retirement: Tom and Lisa, both 50, have a $200,000 balance at 5.5% (20 years left, $1,374/month). They want to retire at 65 mortgage-free. Adding $600/month extra pays off the loan in 13 years (age 63), 2 years before retirement goal. They adjust to $700/month extra, ensuring payoff by age 62, entering retirement debt-free. This strategy requires disciplined budgeting but provides retirement security and eliminates a major monthly expense.