Mortgage Calculator

How is the principal and interest payment calculated?

The standard US residential mortgage uses a level-payment amortization schedule. Every monthly payment is identical (except the last, which absorbs any rounding residual), but the split between interest and principal changes each month. Early payments are front-loaded with interest because interest is charged on the full remaining balance.

The formula derives from the present value of an annuity: M = P x [r(1+r)^n] / [(1+r)^n - 1], where P is the loan amount, r is the monthly rate (annual rate / 12), and n is the total number of payments. In month one, interest = balance x r and principal = M - interest. The balance falls by the principal portion, and the following month's interest is a little lower — so more of the fixed payment chips away at principal. Over a 30-year loan, the crossover where principal exceeds interest typically happens around year 10-12 depending on the rate.

A higher rate shifts more of each payment toward interest, making the crossover later and dramatically increasing total interest paid. Choosing a 15-year term at the same rate roughly doubles the monthly P&I payment but reduces total interest by 50-60% because the balance falls faster and the loan ends sooner.

What does PITI mean, and why does each part matter?

PITI stands for Principal, Interest, Taxes and Insurance. Lenders qualify borrowers on the full PITI payment — not just the P&I — because the ongoing costs of owning the home are as real as the loan repayment. Most lenders collect property tax and homeowners insurance through an escrow account and pay those bills for you.

They divide your annual tax and premium by 12, add those amounts to each mortgage payment, then pay the bills from the account when they are due.

Property tax is set by your local assessor and varies widely — from under 0.5% of the home's value in some Southern states to over 2% in parts of New Jersey and Illinois. The illustrative default in this calculator is 1.2% of the purchase price per year; always enter your own tax assessment for an accurate figure. Homeowners insurance also varies by location, coverage, home age and insurer; a $1,500/year default is a rough middle estimate, not a quote.

HOA dues are not part of PITI in the traditional sense but are included here because they are a fixed monthly obligation. Unlike property tax and insurance, they are not collected through escrow and are not tax-deductible in the same way. This calculator adds them to the total for budgeting clarity; they do not affect the amortization schedule.

When does PMI go away? The Homeowners Protection Act explained

Private Mortgage Insurance protects the lender — not you — if you default. It applies when your down payment is under 20%, which means the loan-to-value ratio (LTV) exceeds 80% at closing. The annual premium is typically 0.5-1.5% of the original loan balance; this calculator defaults to 0.85% as an illustrative middle figure.

The Homeowners Protection Act (12 U.S.C. §4901-§4910), enforced by the CFPB, gives you two cancellation rights. First, you can request cancellation in writing when your balance reaches 80% of the original purchase price, provided you have a good payment history and the home's value has not declined. Second, the lender must automatically cancel PMI — without any request from you — when your balance reaches 78% of the original purchase price based on the original amortization schedule.

This calculator shows the exact month on the schedule when the balance crosses 78% of your entered home price. Making extra principal payments accelerates that date, because the balance falls faster. The PMI drop date moves forward proportionally. Every dollar of extra principal paid early saves both the remaining interest on that dollar and the PMI that would have accrued until the 78% threshold was reached.

How much do extra mortgage payments save?

Every extra-principal payment reduces the outstanding balance immediately. The following month's interest is computed on the lower balance, so slightly more of the regular payment goes to principal, and the effect repeats every month until the loan is paid off — which is why a steady extra payment shortens the term by years rather than months.

This compounding effect means that a consistent extra payment saves more in interest than the face value of the extra amount, because each extra dollar reduces the balance on which future interest accrues.

As an illustration: on a $300,000 loan at 6% over 30 years, the standard monthly P&I is $1,798.65. Adding $200/month extra pays the loan off in 279 months instead of 360 — 6 years 9 months sooner — and saves $91,173 in total interest. The actual numbers depend on the rate and the exact timing, which is why this calculator steps through the schedule rather than using a shortcut formula.

Extra payments are applied entirely to principal in this calculator, which is the standard for US mortgages. Some lenders reserve the right to hold an extra payment and credit it to next month — check your loan agreement. If you intend to pay extra, confirm with your servicer that it will be applied immediately as a principal curtailment.

Should you choose a 30-year or a 15-year mortgage?

The 30-year mortgage offers a lower monthly payment and more flexibility, but at the cost of substantially more total interest. At 6.5%, a $320,000 loan over 30 years costs $408,142 in total interest; the same loan over 15 years costs $181,758 — a difference of $226,385.

The 15-year monthly P&I is $764.92 higher ($2,787.54 vs $2,022.62), but every dollar of that extra payment is building equity faster.

The argument for the 30-year is optionality: you can always make extra payments to pay it down faster, but you are not committed to the higher payment if circumstances change. The argument against is that most borrowers do not consistently make extra payments in practice. The 15-year is a commitment device.

Freddie Mac's Primary Mortgage Market Survey (PMMS) tracks the national average 30-year and 15-year fixed rates weekly. Historical data shows the 15-year rate is typically 0.5-0.75 percentage points lower than the 30-year rate — an additional saving beyond the shorter term. This calculator uses the same rate for both comparison columns; adjust the rate in the 15-year scenario for an even more accurate comparison. Neither rate on this page is a current rate or a recommendation.