What is in a mortgage payment?
Lenders talk about PITI: Principal, Interest, Taxes, Insurance. Principal and interest repay the loan; property tax and homeowner's insurance are usually collected monthly into an escrow account and paid on your behalf. Buyers who budget only for principal and interest routinely underestimate their housing cost by 20–30%.
A worked example
A $350,000 home with $70,000 down (20%) leaves a $280,000 loan. At 6.5% over 30 years, principal and interest run about $1,770 a month. Add typical tax and insurance and the real monthly cost is roughly $2,245. Over the full term the interest alone comes to about $357,000 — more than the original loan. That is not a scam; it is what three decades of borrowing costs at these rates.
Levers worth testing in the calculator
- Down payment. Below 20% down, most US lenders add private mortgage insurance (PMI), often 0.5–1.5% of the loan per year — not included above, so treat sub-20% results as optimistic.
- Rate. On a $280,000 loan, one percentage point changes the payment by roughly $180 a month and lifetime interest by about $65,000.
- Term. A 15-year loan roughly halves total interest but raises the monthly payment by 30–40%.
How much house can you afford?
A common guideline is that total housing costs should stay under 28% of gross monthly income, and all debt payments combined under 36%. Work backwards: if your household earns $8,000 a month, 28% is $2,240 — about the payment in the example above. Guidelines are not laws, but exceeding them consistently is the most common way buyers become house-poor.