What the monthly payment includes
Your lender’s bill is usually more than the loan repayment. This calculator adds up the parts you enter:
- Principal and interest. The loan repayment, worked out with the same formula and rounding as the Loan Calculator: each payment is rounded to the cent, each month’s interest is rounded to the cent, and the last payment absorbs the difference.
- Property tax and home insurance. Entered as yearly amounts and divided by 12. Many lenders collect these with the payment and hold them in an escrow account.
- Mortgage insurance. A yearly percentage of the original loan, divided by 12, charged until it ends (see below).
- HOA or condo fees. Added as a monthly amount. These are often paid to the association rather than the lender, but they are part of the cost of owning the home.
Monthly payment = principal and interest + property tax ÷ 12 + insurance ÷ 12 + mortgage insurance + HOA fees
Worked example
A $400,000 home with 10% down, a 30-year mortgage at 6.5%, $4,800 a year of property tax, $1,800 a year of home insurance and mortgage insurance at 0.55% of the loan a year:
- Loan amount: $400,000 − $40,000 = $360,000.00
- Principal and interest: $2,275.44
- Property tax: $4,800 ÷ 12 = $400.00
- Home insurance: $1,800 ÷ 12 = $150.00
- Mortgage insurance: 0.55% × $360,000 ÷ 12 = $165.00
- Monthly payment: $2,990.44
Mortgage insurance is charged with the first 109 payments, $17,985.00 in all, and then the payment drops to $2,825.44. Over the full 30 years the loan costs $459,164.00 in interest.
When mortgage insurance ends
On a conventional US mortgage with less than 20% down, lenders usually require private mortgage insurance (PMI). Under the Homeowners Protection Act, as the Consumer Financial Protection Bureau explains:
- You can ask in writing to cancel it once the balance is scheduled to fall to 80% of the home’s original value, if your payments are up to date and you meet the other conditions.
- The servicer must end it automatically when the balance is scheduled to reach 78%, if your payments are current.
- At the latest, it must end the month after the midpoint of the loan term, for example after 15 years on a 30-year loan, if your payments are current.
The calculator shows the automatic end date. It follows the original schedule and treats the price you enter as the home’s original value, which is generally the lower of the purchase price and the appraised value (after a refinance, the appraisal at that time). Asking to cancel is a separate, earlier point: in the example, the balance is scheduled to reach 80% after 95 payments, 14 payments before the automatic date. Extra payments can bring it forward: with $200 extra a month, the balance reaches 80% after 64 payments. FHA and VA loans have their own rules and aren’t covered by this date.
How the down payment changes the loan
On a $400,000 home at 6.5% over 30 years, before tax, insurance and mortgage insurance:
| Down payment | Loan | Principal and interest | Total interest |
|---|---|---|---|
| 5% | $380,000 | $2,401.86 | $484,667.97 |
| 10% | $360,000 | $2,275.44 | $459,164.00 |
| 20% | $320,000 | $2,022.62 | $408,140.64 |
A smaller down payment also usually means paying mortgage insurance for longer, and lenders may quote a different rate. Enter the rate and mortgage insurance you’re actually offered.
15 years or 30 years
At the same 6.5% rate, a $320,000 loan over 15 years costs $2,787.54 a month and $181,758.21 in interest. Over 30 years it costs $2,022.62 a month and $408,140.64 in interest. Lenders often quote a different rate for a 15-year loan, so compare using the rates you’re offered for each.
Paying extra
Extra payments go straight to the principal, so the balance falls faster and less interest builds up. In the worked example, paying $200 a month extra saves $108,918.75 in interest and pays the mortgage off 6 years and 1 month sooner. Before paying extra, check whether your mortgage has a prepayment penalty. If you already have a mortgage, the Loan Payoff Calculator starts from your current balance and can work out what it takes to finish by a set date.
Canadian mortgages
Canada’s Interest Act requires a mortgage to state its rate “calculated yearly or half-yearly, not in advance”. Fixed-rate mortgages are usually quoted with interest compounded twice a year, which makes the payment slightly lower than the same rate compounded monthly. Choose “Twice a year (Canada, fixed rate)” under “Interest compounds” to use it.
For example, $520,000 at 5.19% over 25 years costs $3,080.83 a month compounded twice a year, and $3,097.71 compounded monthly. Variable-rate mortgages may be calculated differently, so check your mortgage agreement. The mortgage insurance section models monthly US-style PMI. Canadian mortgage default insurance is usually a one-time premium rather than a monthly charge, and it isn’t modeled here.
Outside the US and Canada, leave compounding on “Monthly” unless your lender tells you otherwise.
Interest rate vs. APR
Enter the interest rate on the mortgage. The APR also includes certain fees and costs, so it is usually higher. It’s the better number for comparing offers, but it doesn’t set your monthly payment. The Consumer Financial Protection Bureau’s home buying guide explains the figures on a mortgage offer.
Assumptions and limitations
- The interest rate is fixed for the whole term. With an adjustable rate, or a Canadian term shorter than the amortization period, the payment can change when the rate resets or the term renews.
- Payments are monthly, made in full and on time.
- Property tax, insurance and HOA fees stay the same every year. In practice they usually change, and your lender adjusts the escrow part of the payment.
- Mortgage insurance is a fixed yearly percentage of the original loan. It ends at the automatic US date described above, based on the price you enter as the home’s original value. Upfront or lender-paid mortgage insurance isn’t modeled.
- Closing costs, points and upfront fees aren’t included.
- Your Loan Estimate and closing documents have the final figures for your mortgage.
Questions
What is PITI?
Principal, interest, taxes and insurance, the four main parts of a mortgage payment. This calculator shows PITI plus mortgage insurance and HOA fees when you enter them.
Why is my lender’s payment different?
Your lender may use different tax or insurance figures, collect an escrow cushion, charge a different mortgage insurance rate, or calculate interest another way. Enter the figures from your Loan Estimate to compare.
Does paying extra end mortgage insurance sooner?
Not automatically. The automatic end date follows the original schedule. Extra payments do bring forward the point where the balance reaches 80% of the original value, when you can ask your servicer to cancel it.