Finance
Mortgage calculator
Most mortgage calculators quote you principal and interest and stop there. That number is rarely what leaves your account. This one adds the escrow items too.
What actually makes up the payment
Only the first term is the mortgage. Principal and interest are what the lender charges you for the money. Everything after it is money the lender collects on someone else's behalf and holds in an escrow account until the bill falls due.
That distinction matters because the escrow portion moves. Your principal and interest are fixed for the life of a fixed-rate loan, but property tax is reassessed and insurance premiums rise. A payment quoted at $2,600 today can be $2,750 in three years without the interest rate changing at all.
How much of the early payments is interest
On a 30-year loan at 6.5%, the first payment on a $320,000 balance is roughly $1,733 of interest and $290 of principal. You are paying nearly six dollars in interest for every dollar that reduces the debt. The crossover point — where principal finally exceeds interest in a single payment — comes around year 18.
This is why paying a little extra early is worth so much more than paying extra later. Every additional dollar of principal in year one removes 29 years of compounding interest on that dollar. The same dollar in year 25 saves almost nothing.
PMI and the 20% rule
If your down payment is under 20%, most US lenders add private mortgage insurance. It protects the lender, not you, and typically costs 0.3% to 1.5% of the loan per year depending on your credit score and how much you put down.
Under the Homeowners Protection Act, a lender must cancel PMI automatically once the balance reaches 78% of the original purchase price, and must honour a written request at 80%. The calculator above assumes the 80% request. If your home appreciates, you can often request removal earlier by paying for an appraisal — worth doing, as it can end the charge years ahead of schedule.
Why the affordability number is not the price you should pay
Lenders commonly approve borrowers up to a debt-to-income ratio of 43% or higher. That is the ceiling of what they will lend, not a recommendation. A payment at that limit leaves nothing for maintenance, which runs about 1% of the home's value per year, or for the fact that a house generates costs a rental never did — water heaters, roofs, appliances.
A more conservative test is whether the full payment, including escrow, stays under 28% of gross monthly income. Run the number both ways before you decide.
Common questions
Should I take a 15-year or 30-year mortgage?
A 15-year loan carries a lower rate and costs far less in total interest, but the monthly payment is roughly 50% higher. The 30-year gives you flexibility: you can always overpay a 30-year loan to mimic a 15-year schedule, but you cannot shrink a 15-year payment in a bad month. If your income is variable, the 30-year with voluntary overpayments is the safer structure.
Does a bigger down payment always save money?
It lowers the loan, removes PMI at 20%, and often earns a slightly better rate. But cash in a house is illiquid — you cannot spend a kitchen. If putting 20% down would leave you without an emergency fund, a smaller deposit with PMI is usually the lower-risk choice, and PMI can be cancelled later.
What is the difference between the interest rate and the APR?
The interest rate determines your payment. The APR folds in origination fees, points and some closing costs, expressed as an annual rate, so it is the better figure for comparing two offers. A loan with a lower rate but heavy fees can have a higher APR than a competitor.
Why is my first statement different from this estimate?
Lenders often collect several months of tax and insurance up front to seed the escrow account, and they may adjust the escrow portion annually once the real bills arrive. The principal and interest figure should match to the cent; the escrow portion is an estimate until the first analysis.