How your monthly mortgage payment is calculated
Your mortgage payment is not one number — it is four or five numbers stacked together, usually abbreviated PITI: principal, interest, taxes and insurance. Lenders qualify you on the full stack, not just principal and interest, which is why the payment quoted in an ad always looks smaller than the payment you actually make.
The principal-and-interest portion comes from the standard amortization formula:
M = P × [ r(1+r)^n ] / [ (1+r)^n − 1 ]
where P is the amount borrowed, r is the monthly interest rate (annual rate divided by 12) and n is the number of monthly payments. On a $336,000 loan at 6.5% over 30 years that works out to roughly $2,124 a month before escrow.
Where the money actually goes in year one
Amortization is heavily front-loaded. In the first year of a 30-year loan at 6.5%, about 84% of every payment goes to interest and only 16% touches the balance. You do not cross the 50/50 line until roughly year 18. This is the single most important fact about mortgages and the reason extra payments made early are worth far more than extra payments made late.
Property taxes and insurance: the part people underestimate
Effective property tax rates vary enormously across the US — from roughly 0.3% of value in Hawaii to over 2% in New Jersey and Illinois. On a $420,000 home that is a difference of about $600 per month. Homeowners insurance has risen sharply in coastal and wildfire-exposed states, and lenders require it for the life of the loan. Both are typically collected monthly into an escrow account and paid on your behalf.
PMI: how to avoid it, and how to get rid of it
If you put down less than 20%, expect private mortgage insurance of roughly 0.3% to 1.5% of the loan per year, priced on your credit score and loan-to-value ratio. Three ways out: put 20% down, use a piggyback second mortgage, or simply wait — PMI must be terminated automatically once the balance hits 78% of the original purchase price, and you can request removal at 80%, sometimes earlier if an appraisal shows your home has appreciated.
Rate shopping is worth more than almost any other move
Research from the Consumer Financial Protection Bureau has repeatedly found that borrowers who gather multiple quotes save meaningfully compared to those who take the first offer. A quarter-point difference on a $336,000 loan is about $55 a month and roughly $20,000 over 30 years. Credit inquiries for mortgages within a 45-day window are treated as a single inquiry by the major scoring models, so shopping several lenders does not meaningfully hurt your score.
Points, and when they pay off
One discount point costs 1% of the loan amount and typically buys down the rate by about 0.25%. The break-even is straightforward: divide the up-front cost by the monthly saving. If a point costs $3,360 and saves $55 a month, you break even in about 61 months. Buy points only if you are confident you will keep the loan — and not refinance — past that point.
Using the amortization schedule
The year-by-year table above shows exactly how your balance falls. Two things to look for: the year in which principal overtakes interest, and the balance at the point you expect to sell. Most American homeowners move or refinance well before year 30, so the balance in year 5 to 7 often matters more than the 30-year total.