A mortgage payment looks like one number and is really four. Understanding which part is which explains most of the surprises people hit: why the payment is bigger than the loan calculator said, why the balance barely moves in year one, and why a 15-year loan with a much higher payment costs so much less in total.
The four parts: PITI
Lenders call the full monthly payment PITI: principal, interest, taxes and insurance.
- Principal is the part that reduces what you owe.
- Interest is the lender’s charge for the month, on whatever you still owe.
- Taxes are one twelfth of your yearly property tax, held in escrow and paid to the county by the lender.
- Insurance is one twelfth of your homeowner’s premium, also escrowed. If your down payment is under 20% on a conventional loan, mortgage insurance (PMI) is added too, and it’s a fifth line in all but name.
HOA dues, where they apply, aren’t part of the mortgage but come out of the same budget, and the mortgage calculator includes them so the monthly total is honest.
Principal and interest: the formula
The principal-and-interest part is a level payment: the same amount every month for the life of the loan, calculated so that the final payment clears the balance exactly. For a loan amount L, a monthly rate r (the yearly rate divided by 12) and n monthly payments:
payment = L × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)
For a $320,000 loan at 6.5% over 30 years: r is 0.065 ÷ 12, n is 360, and the payment comes to $2,022.62. Every lender uses this same formula; the differences between loan estimates are in the rate, the fees and the escrow lines, never in the arithmetic.
Why early payments are mostly interest
In month one you owe $320,000, so the interest is $320,000 × 0.065 ÷ 12 = $1,733.33. The payment is $2,022.62, so only $289.29 goes to principal. Next month you owe $319,710.71, the interest is slightly less, and slightly more goes to principal. The split shifts a little every month, which is what amortization means.
| After | Balance | Interest paid so far |
|---|---|---|
| 1 year | $316,485 | $20,757 |
| 5 years | $299,519 | $100,876 |
| 10 years | $270,819 | $192,533 |
| 20 years | $176,367 | $341,807 |
| 30 years | $0 | $408,142 |
Ten years in, a third of the way through, you’ve paid off less than a sixth of the loan. This is not a trick; it’s just what a 6.5% rate on a large balance does. The amortization schedule calculator builds this table month by month, the way a servicer does, so the totals are exact.
The 15-year loan
Same $320,000, same 6.5%, but 180 payments instead of 360. The payment rises to $2,787.61, about $765 more a month. Total interest over the loan falls from $408,142 to $181,770. You pay $226,000 less for the same house, in exchange for a much bigger monthly commitment for fifteen years instead of a smaller one for thirty.
Fifteen-year rates are usually lower than thirty-year rates too, often by half a point or more, which widens the gap further.
The honest comparison isn’t “which is cheaper”, it’s “what does the $765 a month do otherwise”. If it would sit in a savings account at 4%, the 15-year wins clearly. If it’s the difference between affording the house and not, the 30-year is the only option, and you can still pay it down faster when you’re able to.
Extra payments
Any amount you pay above the required payment goes straight to principal, and because interest is charged on the balance, every dollar of principal you pay early saves interest on that dollar for the rest of the loan.
On the 30-year example, an extra $100 a month:
- Pays the loan off about 3 years and 9 months early
- Saves about $52,000 of interest
An extra $300 a month pays it off roughly 9 years early and saves around $122,000. The amortization calculator has a field for exactly this. Two cautions: check that your servicer applies extra payments to principal rather than holding them toward next month, and don’t do it with money you might need, because you can’t get it back out without refinancing or selling.
What the down payment does
The loan is the price minus the down payment, so a bigger down payment means a smaller loan and a smaller payment. Below 20% down on a conventional loan you’ll pay mortgage insurance, typically 0.3% to 1.5% of the loan per year, until you reach 20% equity. On a $400,000 house with 10% down, PMI at 0.5% is $150 a month on top of everything else. The calculator applies it automatically when the down payment is under 20%.
Rate versus APR
The interest rate sets the payment. The APR folds the lender’s fees into a single rate so you can compare offers: a loan at 6.4% with $8,000 of fees can be more expensive than one at 6.6% with $1,000. The APR calculator shows how many percentage points the fees add.
Refinancing
Refinancing replaces the loan with a new one, usually to get a lower rate. The trap is the term: refinancing 27 years remaining into a fresh 30-year loan lowers the payment but can raise the total interest, because you’re paying for three extra years. The refinance calculator shows the monthly saving, the months it takes to earn back the closing costs, and the lifetime difference, which is the number that matters.
Sources
The level-payment formula is the standard annuity formula used in every loan estimate; the CFPB’s guide to loan estimates explains where each line appears. Mortgage insurance ranges are typical of conventional loans and vary by lender and credit score.