Honest mortgage math,
from the first showing to payoff.

How a mortgage payment is calculated

A mortgage payment is calculated using a process called amortization. Your lender takes the total loan amount, applies the interest rate, and spreads payments evenly over the loan term (typically 15 or 30 years). Each monthly payment is the same dollar amount, but how that payment is split between principal and interest changes over time.

In the early years of your mortgage, the majority of each payment goes toward interest because the outstanding balance is still large. As you pay down the principal, more of each payment goes toward reducing the balance. By the final years of the loan, nearly all of your payment goes toward principal.

The standard mortgage formula calculates your monthly principal and interest payment as: M = P[r(1+r)^n] / [(1+r)^n - 1], where P is the loan amount, r is the monthly interest rate, and n is the total number of payments. This ensures the loan is fully paid off by the end of the term.

What's included in your monthly payment (PITI)

Your true monthly housing cost is more than just principal and interest. Lenders and financial advisors use the acronym PITI to describe the full payment:

• Principal — The portion of your payment that reduces your loan balance. This builds your home equity over time.
• Interest — The cost of borrowing money. This is how the lender makes a profit on the loan.
• Taxes — Property taxes assessed by your local government, typically 0.5% to 2.5% of the home's value per year depending on location.
• Insurance — Homeowners insurance protects against damage and liability. Lenders require it as long as you have a mortgage.

If your down payment is less than 20%, you will also pay Private Mortgage Insurance (PMI). PMI protects the lender (not you) in case of default. It typically costs 0.5% to 1% of the loan amount per year and is added to your monthly payment. The good news: PMI automatically drops off once you reach 20% equity in your home.

This calculator includes all PITI components plus PMI so you can see your true monthly housing cost — not just the principal and interest that basic calculators show.

How extra payments save you money

Making extra payments toward your mortgage principal is one of the most powerful ways to save money on your home loan. Because mortgage interest is calculated on the remaining balance, every extra dollar you pay reduces the amount of interest charged in all future months.

Consider a $300,000 mortgage at 7% for 30 years. The monthly payment is about $1,996 and you will pay $418,527 in total interest over the life of the loan. Now add just $200 per month in extra payments:

• You save over $100,000 in interest payments
• You pay off the loan approximately 8 years early
• Your total cost drops by more than the extra payments themselves because of the compounding effect

Even $100 extra per month makes a meaningful difference — saving roughly $60,000 in interest and cutting about 5 years off a 30-year mortgage. The key is that extra payments go entirely toward principal, which reduces your balance faster and means less interest accrues each month going forward.

Use the "Extra Monthly Payment" field in the calculator above to see exactly how much you could save with your specific loan amount and rate.