By David Chen · Published September 20, 2026
Why principal and interest is the wrong number to budget with
Mortgage advertising is built on the principal-and-interest figure because it is the smallest honest number available. On a $400,000 home with 20% down, that figure is $2,022.62 a month — but the money leaving your account is $2,572.62, because property tax and homeowners insurance arrive with it. Over a year the difference is $6,600, and over five years it is a new car.
Lenders have a word for the full figure: PITI — principal, interest, taxes and insurance. It is the number they underwrite against, and it is the number this calculator returns. HOA dues and mortgage insurance are added on top when they apply, which is why the fields for both are there.
The down payment decision
On a $400,000 purchase, moving the down payment down the ladder does three things at once: the loan grows, the payment grows faster than the loan does, and a new cost appears.
| Down | Cash | Loan | Principal & interest | Tax | Insurance | PMI | Total monthly |
|---|---|---|---|---|---|---|---|
| 20% | $80,000 | $320,000 | $2,022.62 | $400 | $150 | $0 | $2,572.62 |
| 10% | $40,000 | $360,000 | $2,275.44 | $400 | $150 | $150 | $2,975.44 |
| 5% | $20,000 | $380,000 | $2,401.86 | $400 | $150 | $269 | $3,221.03 |
Home price $400,000, 30-year fixed at 6.50%. Property tax at 1.2% of the purchase price a year and insurance at $1,800 a year. PMI assumed at 0.5% of the loan a year for the 10% case and 0.85% for the 5% case — quoted rates rise as the down payment falls. Figures rounded.
The jump from 20% down to 10% costs $402.82 a month, of which $150 is mortgage insurance. Put another way: the extra $40,000 you keep in the bank is being rented at an effective rate of about 12% a year, because that is what the additional payment comes to against the cash retained.
Term moves the cost far more than rate does
Borrowers spend hours shopping for a quarter point off the rate and almost no time deciding the term. On the same $320,000 loan, that is backwards:
| Term | Rate | Monthly | Total interest |
|---|---|---|---|
| 30 years | 6.50% | $2,022.62 | $408,142 |
| 20 years | 5.75% | $2,246.67 | $219,200 |
| 15 years | 6.00% | $2,700.34 | $166,062 |
Principal and interest only. Shorter terms commonly carry a lower rate, which is reflected here.
Shortening to 15 years raises the payment by $677.72 and removes $242,081 of interest. Cutting half a point off the 30-year rate instead — from 6.50% to 6.00% — saves $104 a month and about $37,460 over the life of the loan. The term choice is worth roughly six and a half times as much, and unlike the rate it is entirely within your control.
That is not an argument for a 15-year mortgage regardless of circumstances. The higher payment is a real constraint, and a payment you cannot sustain is worse than interest you would rather not pay. The honest way to decide is to compare the two payments against your income and pick the shorter term you can hold through a bad year. The amortization schedule calculator shows how the balance behaves under each.
What this calculator deliberately leaves out
- Closing costs. Origination, title, appraisal and recording fees usually total 2–5% of the purchase price and are paid at closing. Financed into the loan, they add to every payment for thirty years.
- Escrow cushion. Servicers commonly hold one to two months of tax and insurance payments as a buffer, which appears as a slightly higher monthly figure than the arithmetic suggests.
- Adjustable rates. This calculator models fixed-rate loans. An adjustable-rate mortgage has a fixed opening period and then moves — sometimes a long way.
- Tax deductibility. Whether mortgage interest or property tax reduces your bill depends on your jurisdiction, your filing status and whether you itemise. It is a genuine effect and it belongs in a tax return, not in a payment estimate.
How much house you can actually carry
The long-standing guideline is that housing costs should stay within 28% of gross monthly income, and all debt payments — housing, car, student loans, minimum card payments — within 36%. Many lenders will approve up to roughly 43% total debt-to-income, which is a lending limit rather than a comfort limit.
Run it backwards for a sanity check: at a $2,572.62 monthly payment, the 28% guideline implies gross income of about $9,188 a month, or roughly $110,000 a year. If the figure the calculator returns is comfortable against your income, the house is affordable. If you are stretching to reach the lending limit, the risk is not the mortgage — it is the first unexpected repair, which on a house is not a matter of if.
Before committing, put the two offers side by side the way our guide to comparing offers sets out, and understand what the APR is really telling you with APR versus interest rate.
Frequently asked questions
What does PITI mean?
PITI stands for principal, interest, taxes and insurance — the four components of a mortgage payment. Lenders use the term because the payment they assess you against is not just the loan repayment; it is everything the property costs you each month. HOA dues are sometimes added as a fifth item and written as PITIA.
Why is my actual payment higher than this calculator shows?
The usual reasons are closing costs financed into the loan, an escrow cushion the servicer is allowed to collect, mortgage insurance at a rate different from the one entered here, or lender fees added to the balance. The Loan Estimate your lender must issue is the authoritative figure; treat anything else as a planning estimate.
How much do I need for a down payment?
It depends on the loan programme. Conventional loans are commonly available from 3% down, and government-backed loans lower than that, but a down payment under 20% normally triggers mortgage insurance. The calculator shows what that costs per month and how long it lasts.
Will my property tax and insurance stay the same?
No. Both are outside the loan agreement. Tax assessments are reassessed periodically and insurance premiums have risen sharply in many markets, while your principal and interest payment stays fixed on a fixed-rate loan. That is why an escrow payment can rise even when your mortgage does not.
Does this calculator include closing costs?
No. Closing costs — origination fees, title insurance, appraisal, recording fees and prepaid tax and insurance — are typically 2% to 5% of the purchase price and are paid at closing rather than spread across the loan. If you finance them, add them to the home price to see the effect on the payment.
When can mortgage insurance be removed?
On a conventional loan, a borrower with a good payment history can normally ask the servicer to cancel it once the balance reaches 80% of the original purchase price, and it terminates automatically at 78%. Government-backed loans such as FHA follow separate rules, so check the loan documents rather than assuming these thresholds apply.
Other calculators
- Home affordability calculator — Works the mortgage question backwards: start from your income, debts and down payment, and find the price you can actually carry rather than the price a lender will approve.
- Rent vs buy calculator — The full cost of owning against renting and investing the difference, with the year owning overtakes — and a sensitivity check on the two assumptions the answer actually rests on.
- Personal loan calculator — Unsecured borrowing at the rates lenders actually quote, with the origination fee maths that decides whether the money is worth taking.
- Auto loan calculator — Work out the amount financed from price, down payment, trade-in and sales tax, then see what the monthly payment really costs over 48, 60 or 72 months.
Guides that go with it
- How much down payment do I need? — What 3.5%, 10% and 20% down really cost: 20% down saves $105,249 over the life of the loan, while the $40,000 you keep back is worth an implied 10.72% a year over seven.
- What is an escrow account? — What actually flows through it, how the cushion is set, and why a 10% tax rise costs $40 a month once the account settles but $80 a month in the first year.
- How to remove PMI from your mortgage — Why mortgage insurance ends when the balance crosses a threshold rather than after a fixed number of years, what it costs on a worked loan, and how a larger down payment or extra payments bring the date forward.
This calculator is educational and is not financial advice, and its output is an estimate — lenders apply their own fees, rounding rules and day-count conventions. Every figure was produced by the same calculator code and independently recomputed before publication. Spot an error? Tell us — see also our disclaimer.