Question 1

How is a monthly mortgage payment calculated?

Accepted Answer

Your base mortgage payment covers principal and interest, calculated using the loan amount, interest rate, and loan term. The formula produces a fixed monthly payment that gradually shifts from mostly interest at the start to mostly principal at the end — this is called amortization. Property taxes, home insurance, HOA fees, and estimated PMI are added on top to get your total monthly housing cost. This calculator covers conventional fixed-rate mortgages.

Question 2

What does PITI stand for?

Accepted Answer

PITI stands for Principal, Interest, Taxes, and Insurance — the four components of a full monthly mortgage payment. Principal pays down your loan balance. Interest is the lender's fee for the loan. Property taxes are often collected monthly through an escrow account and paid to the local taxing authority by your mortgage servicer — not all loans require escrow, but most conventional loans do. Insurance is homeowner's insurance, also commonly escrowed. If your down payment is under 20% on a conventional loan, estimated PMI is also added.

Question 3

What is PMI and when can I remove it?

Accepted Answer

PMI (Private Mortgage Insurance) protects the lender if you default on a conventional loan. It typically applies when your down payment is below 20% of the purchase price, though lender-paid PMI and other arrangements exist. Actual PMI rates vary based on credit score, down payment, loan amount, and insurer — 0.5% is a common starting estimate. Under the Homeowners Protection Act: you may request cancellation when your scheduled balance reaches 80% of the original home value (subject to lender requirements and payment history); lenders must automatically cancel at 78% of the original value based on the amortization schedule, assuming you're current; and PMI must terminate at the loan midpoint. Making extra principal payments can help you reach 80% LTV sooner and request removal earlier. These rules generally apply to conventional mortgages — FHA and VA loans have different mortgage insurance rules.

Question 4

How does loan term affect my payment?

Accepted Answer

A shorter term means a higher monthly payment but far less total interest. On a $500,000 loan at 6.5%: a 30-year term costs about $3,160/month with roughly $638,000 in total interest. A 15-year term costs about $4,355/month — $1,195 more per month — but only $284,000 in total interest, saving about $354,000 over the life of the loan. The right choice depends on your cash flow and how long you plan to stay in the home.

Question 5

How much do I need for a down payment on a conventional loan?

Accepted Answer

Conventional loans can require as little as 3% down through certain programs (such as Fannie Mae's HomeReady or Freddie Mac's Home Possible). However, any down payment below 20% typically requires PMI on a conventional loan. A 20% down payment generally avoids borrower-paid PMI on a conventional mortgage — on a $700,000 home, the difference between 5% and 20% down can save $300–$400/month in PMI alone. The right down payment depends on your savings, cash flow, and how quickly you want to build equity.

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