The number a lender quotes for "principal and interest" is rarely the full story. Your actual monthly mortgage payment also folds in property taxes, homeowners insurance, and — if your down payment is under 20% — private mortgage insurance. Here's how each piece is calculated so the total stops being a mystery.
The principal & interest formula
The core of any fixed-rate mortgage is the amortization formula:
M = P × [ r(1 + r)^n ] ÷ [ (1 + r)^n − 1 ]
- P = loan amount (home price minus down payment)
- r = monthly interest rate = annual rate ÷ 12
- n = number of monthly payments = years × 12
Example: a $400,000 home with $80,000 down (20%) leaves a $320,000 loan. At 6.5% over 30 years, the principal-and-interest payment works out to about $2,023 per month.
The parts lenders add on top
Most payments are collected as PITI — principal, interest, taxes, and insurance — often plus PMI and HOA:
- Property tax — an annual percentage of the home's value, split into 12 monthly chunks and held in escrow.
- Homeowners insurance — your yearly premium divided by 12.
- PMI — typically required under a 20% down payment, roughly 0.5% of the loan per year, and it drops once you reach 20% equity.
- HOA dues — a flat monthly fee in some communities.
Add these to principal and interest and you get the true monthly cost.
How to use it
Doing all of this by hand is tedious, so let the Mortgage Calculator assemble it for you. Enter the price, down payment, rate, and term, then add tax, insurance, and HOA to see a full payment with PMI handled automatically.
A couple of ways to use it well:
- Compare terms. Run the same loan at 15 and 30 years to see how much total interest a shorter term saves.
- Test the down payment. Crossing the 20% line removes PMI and lowers the monthly figure right away.
Related math
A mortgage is just a large amortized loan, so the general Loan Calculator follows the same formula for any borrowing. And if you want to see how money grows on the other side — savings rather than debt — the Interest Calculator shows simple and compound growth over time.