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How Mortgage Payments Work: PITI, Interest, and PMI Explained

June 4, 2026 · 4 min read

A monthly mortgage payment looks like a single number, but it's actually the sum of several distinct components, and most first-time buyers are surprised by how many of them there are. This guide breaks down what makes up that payment, explains the math behind the interest calculation, and shows you how to estimate yours without a spreadsheet.

The four (or five) components: PITI + PMI

A full mortgage payment typically includes:

  1. Principal — the portion paying down the loan balance
  2. Interest — the lender's charge for borrowing
  3. Taxes — property taxes, usually collected monthly and held in escrow
  4. Insurance — homeowner's insurance, also typically escrowed
  5. PMI — Private Mortgage Insurance, if your down payment is under 20%

Lenders usually bundle items 3, 4, and (if applicable) 5 into your monthly payment through an escrow account. PITI is the acronym for the core four: Principal, Interest, Taxes, Insurance.

How principal and interest are calculated

The principal + interest (P&I) portion uses the standard amortization formula:

M = P × [ i(1+i)ⁿ ] / [ (1+i)ⁿ − 1 ]

Where:

  • M = monthly P&I payment
  • P = loan principal (home price minus down payment)
  • i = monthly interest rate (annual rate ÷ 12)
  • n = total number of payments (years × 12)

For a $280,000 loan at 6.5% over 30 years:

  • i = 6.5% / 12 = 0.5417% per month
  • n = 30 × 12 = 360 payments
  • M ≈ $1,770/month for principal and interest alone

The amortization pattern: mostly interest early on

The P&I payment stays fixed for the life of the loan, but the split between principal and interest shifts dramatically over time. In the early years, almost all of your payment is interest; as the balance drops, more of each payment chips away at the principal.

In year one on a 30-year mortgage at 6.5%, a typical payment is roughly 85% interest and 15% principal. By year 25, those proportions have essentially flipped. This is why even a small extra payment early in a mortgage — applied to principal — can shorten the loan significantly.

Property tax and insurance

Property tax is usually quoted annually but collected monthly. For a $350,000 home in a jurisdiction with a 1% annual property tax rate, that's $3,500/year → $292/month held in escrow.

Homeowner's insurance varies widely by location and coverage, but a rough rule of thumb is $800–$2,000/year for most homes → roughly $70–$170/month.

These components don't go to the lender — they're held in escrow and paid on your behalf when the bills come due.

PMI: the cost of a small down payment

If your down payment is less than 20% of the home's purchase price, lenders typically require Private Mortgage Insurance. PMI protects the lender (not you) if you default.

PMI rates vary, but a common range is 0.5%–1.5% of the loan balance per year. On a $280,000 loan at 0.5%, that's $1,400/year → $117/month added to your payment.

The good news: PMI is temporary. Once you've paid the loan down to 80% of the original purchase price (or the home appreciates enough to reach that threshold), you can request removal.

How to estimate your full payment

Add all five components:

Component Monthly amount (example)
Principal + interest $1,770
Property tax $292
Homeowner's insurance $100
PMI (if < 20% down) $117
Total $2,279

The Mortgage Calculator computes all five components at once — enter your home price, down payment, interest rate, loan term, annual tax, insurance, and PMI rate, and it shows your estimated monthly total, a monthly breakdown, the total interest paid, and the total cost of all payments. All math runs locally in your browser.

What the calculator doesn't include

A few costs that aren't in a standard PITI payment:

  • HOA fees (if applicable)
  • Maintenance and repairs (~1% of home value per year is a common rule of thumb)
  • Flood or earthquake insurance (required in some areas, separate from standard homeowner's policy)
  • Closing costs (one-time, typically 2–5% of the purchase price)

These are real budget items but not part of your monthly mortgage payment — plan for them separately.

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