What the payment is really made of, why the early years buy almost none of the house, and which of the costs you are quoted are negotiable. General information, not personalized financial or tax advice.
Lenders call it PITI: principal, interest, taxes and insurance. Principal and interest are the loan itself, and that is the number a rate quote refers to. Taxes and insurance are not the lender's money at all — they are collected from you and held in an escrow account, then paid out to your county and your insurer when those bills come due.
On a $400,000 home with 20% down at 6.5% over 30 years, principal and interest come to $2,023 a month. Property tax at 1.1% adds $367 and homeowners insurance at $1,700 a year adds $142, so the payment that actually leaves your account is about $2,531. If the home has an HOA, that is a fifth line and it is not in the mortgage at all. The mortgage calculator takes all of these, which is why the number it shows is higher than the one a rate table implies.
The escrow half is why a fixed-rate mortgage does not have a fixed payment. Your rate is locked, but your property tax assessment and your insurance premium are not, and both have been moving. The Consumer Financial Protection Bureau describes escrow as a way to budget for large property bills in small monthly pieces; the flip side is that when those bills rise, your monthly payment rises with them, sometimes with a shortfall to make up as well.
An amortizing loan charges interest on the balance you still owe, and the balance starts at its largest. The payment is level, so early on it is mostly interest with a sliver of principal, and the mix shifts slowly as the balance falls. On that $320,000 loan, year one costs $24,272 in payments: $20,695 of interest and $3,577 of principal. Under 15% of the first year's payments buy any of the house.
The crossover is later than almost anyone guesses. Principal does not exceed interest in a single monthly payment until month 233 — year 19 of a 30-year loan. Over the full term the loan costs $408,142 in interest on $320,000 borrowed, which is to say the interest is larger than the house was.
This is not a trick, and the loan is not badly designed: it is what charging a fixed rate on a falling balance produces. But it explains several things at once. It is why selling after three years leaves you with far less equity than three years of payments suggests. It is why refinancing restarts a cost curve you had already climbed. And it is why extra principal paid early does so much more than the same money paid late. How interest works covers the mechanism underneath.
Put less than 20% down on a conventional loan and the lender requires private mortgage insurance. It is worth being precise about what it is: insurance on the lender's loss if you default, paid by you, covering nothing of yours. The CFPB notes it can be paid as a monthly premium added to the payment, as an up-front premium at closing, or as both — and that an up-front premium may not be refundable if you move or refinance soon after.
The part people miss is that it is temporary. You can request cancellation once the balance is scheduled to reach 80% of the home's original value, and the servicer must terminate it automatically at 78%, or at the midpoint of the loan's amortization schedule, whichever comes first. Nobody will remind you about the 80% request, so it is worth knowing roughly which year your loan reaches it.
Which means "you need 20% down" is not quite the rule it is repeated as. A smaller down payment costs you PMI for a while and a larger loan balance forever, but it also leaves cash in your hands. FHA loans go further, allowing as little as 3.5% down, with their own mortgage insurance that follows different and generally less forgiving cancellation rules.
A discount point is a fee paid at closing to lower the interest rate. One point is one percent of the loan amount — on a $320,000 loan, $3,200. How much rate that buys is not fixed: the CFPB is explicit that the reduction per point varies by lender, loan type and market, and gives an example where 0.375 points bought a drop from 5.0% to 4.875%.
The maths is a payback period, not a yes or no. Suppose one point on that loan takes 6.5% down to 6.25%: the payment falls from $2,023 to $1,970, saving $52 a month against $3,200 paid up front. That is a breakeven at month 62 — a little over five years. Stay longer and the points were worth it; sell, refinance or pay the loan off sooner and they were not.
So the question points really ask is how long you will keep this exact loan, which is the same uncertain forecast the rent versus buy decision turns on. It is also why comparing two lenders means comparing rate and points together: a quote advertising a lower rate while charging two points is not necessarily the cheaper loan, and the annual percentage rate exists precisely to make that comparison possible.
Most mortgages are written to standards that let them be sold on to Fannie Mae or Freddie Mac, which is what keeps their rates competitive. That requires the loan to sit under the conforming loan limit, set each year by the Federal Housing Finance Agency. For 2026 the baseline limit on a one-unit home is $832,750, an increase of $26,250 on 2025, tracking a 3.26% rise in home prices over the year to the third quarter of 2025.
In designated high-cost areas the limit rises to a ceiling of $1,249,125, which is 150% of the baseline. Borrow more than the limit that applies where you are buying and you are in jumbo territory: a loan the agencies will not buy, which usually means stricter credit and income requirements, a larger down payment, and a rate set by whoever is willing to hold it.
Underneath that sit the government-backed options — FHA loans with their 3.5% minimum down payment, plus VA and USDA loans for those who qualify — each with its own insurance or guarantee fee. The right comparison between them is never the rate alone. It is the rate plus the mortgage insurance plus how long that insurance lasts.
Because early payments are nearly all interest, an extra dollar of principal now removes every future interest charge that dollar would have generated. On the $320,000 loan, adding $200 a month clears it in 281 months instead of 360 — 23.4 years rather than 30 — and cuts total interest from $408,142 to $302,714. That is $105,429 saved for $200 a month, and the money is doing nothing cleverer than refusing to be borrowed.
Two cautions. It is not automatically the best use of the money: paying extra on a 6.5% mortgage is a guaranteed 6.5% return, which beats clearing nothing but loses to clearing a credit card at 22%, and is a real but unspectacular return against a long-horizon investment. And the money becomes very hard to get back — equity is not a savings account, and reaching it means selling or borrowing against the house.
If you do it, make sure the servicer applies the extra to principal rather than holding it as a prepayment of next month's bill. The two look similar on a statement and only one of them shortens the loan.
Two loans with the same payment can differ by tens of thousands over their life, because term and rate both move the payment. A 30-year loan at 6.5% and a shorter or cheaper loan can look alike monthly and be nothing alike in total. Compare the total interest, which the calculator shows, not just what leaves your account.
Pre-qualification is an estimate from numbers you stated. Pre-approval involves documentation and a credit check and carries real weight with a seller. Neither is a commitment to lend: the final decision comes after the property is appraised and your finances are verified again, which is why changing jobs or opening credit mid-purchase can undo it.
Scoring models treat multiple mortgage enquiries inside a short window as one event, precisely so that shopping is not punished. Given how much of the total cost the rate decides, comparing several lenders is one of the highest-value hours available — and how credit scores work covers the rest of what moves the number.
Some are: recording taxes and the appraisal are what they are. Others — lender origination and processing fees, and which title company is used — have room in them. The Loan Estimate is a standardised form precisely so the same lines can be compared across lenders, and a lender credit can buy some of them down in exchange for a higher rate.
Loan limits are set annually by the FHFA and rise with the house price index; the ones above apply to 2026. Every worked example on this page uses a $400,000 home with 20% down at 6.5% over 30 years, and can be reproduced in the mortgage calculator.
Nothing is saved or sent anywhere; this just checks your answers in the page itself.
The 6.5% rate, 1.1% property tax and $1,700 insurance premium used throughout are illustrative, not quotes: rates depend on your credit, the loan and the day, and tax and insurance vary enormously by state and by property. PMI cost is not stated here because it depends on credit score, down payment and insurer, and the CFPB publishes no typical figure. This page is general information, not financial or tax advice.