How it’s calculated
The monthly payment has four parts, often abbreviated PITI: principal and interest (the amortized loan payment), property taxes and homeowners insurance (often collected into an escrow account), plus private mortgage insurance when you put down less than 20% on a conventional loan.
Example: a $400,000 home with 20% down is a $320,000 loan. At 6% for 30 years, i = 0.005 and n = 360, so P&I = $1,918.56. Add tax (1.2% × 400,000 ÷ 12 = $400) and insurance (1,800 ÷ 12 = $150): about $2,468.56 a month.
HOA dues, flood insurance and closing costs are not included. Your Loan Estimate shows the lender's exact figures.
Frequently asked questions
When can I stop paying PMI?
On most conventional loans you can ask to cancel PMI once the balance reaches 80% of the home's original value, and it must end automatically at 78%, if you are current on payments.
Why does my lender's payment differ?
Lenders use your actual tax bill, insurance quote and PMI pricing, and may add escrow cushions. Treat this as an estimate.
15 or 30 years?
A 15-year loan has a higher payment but usually a lower rate and far less total interest. A 30-year loan keeps payments lower and more flexible.
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Sources
- How does paying down a mortgage work? — U.S. Consumer Financial Protection Bureau
- When can I remove private mortgage insurance (PMI) from my loan? — U.S. Consumer Financial Protection Bureau
- Contemporary Mathematics, §6.12 Renting and Homeownership — OpenStax
Formulas are taken from the free public references above. Results are provided “as is” for informational and educational purposes only. See our disclaimer.
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