How it works
A monthly mortgage payment usually has four parts, often called PITI: principal, interest, property taxes and homeowners insurance. Many buyers also pay HOA dues, and if you put down less than 20% most conventional lenders add private mortgage insurance (PMI).
Principal and interest use the standard amortization formula on the loan amount (price minus down payment):
M = L × r ÷ (1 − (1 + r)−n)
where r is the annual rate ÷ 12 and n is the number of months. Taxes and insurance are divided by 12 and added on. PMI here is estimated as the yearly PMI rate times the loan amount, divided by 12.
This is an estimate. Your lender's figures depend on your credit, location and loan type.
Worked example
A $375,000 home with $75,000 down (20%) leaves a $300,000 loan. At 6.5% for 30 years, principal and interest come to $1,896.20 a month.
Add $4,500 a year in property tax ($375/month) and $1,500 a year in insurance ($125/month) and the total is about $2,396.20 a month. With 20% down there's no PMI.
Over 30 years you'd pay about $382,633 in interest on top of the $300,000 borrowed.
Frequently asked questions
How much house can I afford?
A common rule of thumb is keeping your total housing payment under about 28% of your gross monthly income, and all debt payments under about 36%. Lenders use their own limits.
Is a 15-year or 30-year mortgage better?
A 15-year loan has a higher monthly payment but a lower rate and far less total interest. A 30-year loan keeps the payment lower and leaves more room in your budget.
How do I get rid of PMI?
On a conventional loan PMI can usually be removed once you reach 20% equity, and it's typically dropped automatically at 22%. Paying extra principal gets you there faster.
Why is my escrow payment different from this estimate?
Lenders collect taxes and insurance through escrow using your actual bills, which change every year. Use your real tax and insurance figures above for a closer number.