How this mortgage calculator works
A fixed-rate mortgage is repaid in equal monthly installments of principal and interest. Early on, most of each installment is interest because the balance is large; each month a little more goes to principal, which is why the balance line above curves downward slowly at first and faster near the end. On top of that installment, most lenders collect one-twelfth of your annual property tax and homeowners insurance into escrow, and add private mortgage insurance (PMI) when you borrow more than 80% of the price.
The formula
The principal-and-interest payment M on a loan of P dollars at monthly rate r (annual rate ÷ 12) for n months is:
M = P × r × (1 + r)^n / ((1 + r)^n − 1)
The full estimate then adds the escrow and insurance pieces:
Monthly total = M + property tax/12 + insurance/12 + PMI + HOA PMI per month = loan × PMI rate / 12 (only while balance > 78% of price)
Worked example
A $400,000 home with 20% down leaves a loan of $320,000. At 6.5% for 30 years, r = 0.065 / 12 = 0.0054167 and n = 360.
(1 + r)^360 ≈ 6.9917, so M = 320,000 × 0.0054167 × 6.9917 / 5.9917 ≈ $2,022.62.
Add $4,800 / 12 = $400 property tax and $1,800 / 12 = $150 insurance. With 20% down there is no PMI, so the estimate is $2,572.62 a month. Over 30 years you would pay about $408,142 in interest on top of the $320,000 borrowed.
Assumptions and limitations
- Fixed rate only. Adjustable-rate (ARM) payments change after the intro period and aren't modeled.
- Taxes and insurance are flat. In reality both usually rise over time; reassessments after a purchase are common.
- PMI is simplified. Real PMI pricing depends on credit score and loan-to-value. It's dropped here when the scheduled balance reaches 78% of the purchase price. FHA, VA and USDA loans use different insurance or guarantee fees.
- Closing costs, points and lender fees are not included. Your Loan Estimate lists them on page 2.
- Payments are not rounded to the cent internally; displayed figures are rounded, so totals may differ from a lender's by a few dollars over the life of the loan.
Sources: Consumer Financial Protection Bureau, Buying a House and When can I remove PMI? (Homeowners Protection Act of 1998).
Frequently asked questions
What does PITI mean?
PITI stands for principal, interest, taxes and insurance — the four parts of a typical monthly mortgage payment when the lender collects property tax and homeowners insurance through an escrow account. PMI and HOA dues are added on top when they apply.
When does PMI stop?
On a conventional loan you can ask the lender to cancel PMI once the balance reaches 80% of the home's original value, and it must end automatically at 78% under the Homeowners Protection Act, provided you are current on payments. This calculator drops PMI at the 78% point of the scheduled balance. FHA mortgage insurance follows different rules.
Why is my lender's payment slightly different?
Lenders round each payment to the cent, may estimate escrow from the county's actual tax bill, and sometimes charge an escrow cushion. The principal-and-interest part should match to within a few cents for the same loan amount, rate and term.
Does a 15-year mortgage really save that much?
Usually yes. Using the example inputs with a 15-year term instead of 30 raises the monthly principal and interest but cuts total interest by more than half, because the balance is paid down twice as fast and 15-year rates are typically lower. Try it by changing the term.
How much should I put down?
Twenty percent avoids PMI on a conventional loan, but many buyers put down 3–10%. A smaller down payment keeps cash in reserve at the cost of a larger loan, PMI and more interest. Compare a few down payments here and look at total interest and the PMI line.
CalcNest results are estimates based on the inputs and assumptions above, not financial, tax or lending advice. A lender's official Loan Estimate or your account statement is the final word.