What a mortgage really costs each month

Six things to know before you sign

1. Why the real payment is bigger than principal and interest

   Many calculators show only principal and interest. In this calculator's default example ($450,000 home, 20% down, 7%, 30 years, 0.9% property tax, $1,800 a year of insurance), principal and interest come to $2,395 a month and taxes and insurance add $488, so principal and interest are about 83% of the payment. Where you live moves that a lot: at Illinois's 1.79% average property tax rate the tax alone is $671 a month; at Hawaii's 0.31% it is $116 (NAHB, 2024 ACS data). Set the sliders to your county's rate and an actual insurance quote rather than leaning on a multiplier.

2. What PMI costs, and when it goes away

   On a conventional loan with less than 20% down you usually pay private mortgage insurance. Freddie Mac puts the typical cost at about $30 to $70 a month per $100,000 borrowed, roughly 0.36% to 0.84% a year, higher with a lower credit score or a smaller down payment (Freddie Mac). This calculator assumes 0.55% a year at 10% to 19.5% down, 0.75% at 5% to 9.5% and 0.95% below 5%: illustrative rates, not a quote. PMI comes off automatically when your scheduled balance reaches 78% of the home's original value, and you can ask to remove it at 80% if you're current and the home hasn't lost value (CFPB). With 10% down on a 30-year loan at 7%, the normal schedule reaches 80% after about 8½ years and 78% after about 9½. On that $405,000 loan, PMI at 0.55% is about $186 a month.

3. Why early payments are almost all interest

   An amortizing loan front-loads the interest. On a 30-year mortgage at 7%, the first payment is about 88% interest and 12% principal, and the point where each payment is more principal than interest doesn't arrive until about year 21. That is why extra principal in the early years does so much: $200 a month extra on a $400,000, 30-year loan at 7% pays it off 5 years and 9 months early and saves about $127,000 in interest.

4. The 28/36 guideline, and why approval isn't a budget

   Traditional underwriting guidance says housing costs should be no more than 28% of gross monthly income and total debt payments no more than 36%. Lenders often approve more: 43% was the cap for a "qualified mortgage" until the CFPB replaced it with a price-based test in 2021, and Fannie Mae's automated underwriting can go to 50% (Selling Guide B3-6-02). On $8,000 a month of gross income, the gap between a 36% and a 50% debt-to-income ratio is $1,120 a month: money that would otherwise be your cushion for the next emergency. The home affordability calculator works it backward from your income.

5. 15 years or 30: the arithmetic

   On a $400,000 loan, 30 years at 7% against 15 years at 6.4% (15-year rates usually run about half a point lower), total interest falls from about $558,000 to $223,000, a difference of roughly $335,000. The monthly principal and interest is about 30% higher: $3,462 against $2,661. The 30-year buys flexibility if your income is uneven or you would invest the difference; the 15-year buys forced saving and an earlier finish if your income is steady. A middle path is to take the 30 and pay extra when you can.

6. What this calculator leaves out

   Closing costs: on home purchase loans in 2023, lender and settlement charges such as origination fees, discount points, appraisal and title had a median of $6,684 (CFPB analysis of HMDA data), before prepaid taxes, insurance, escrow deposits and any transfer taxes. Also maintenance (a common rule of thumb, not a measured figure, is 1% of the home's value a year), utilities, and what your down payment might have earned elsewhere. A home is a lifestyle decision as much as a financial one; both views matter.