Worked example: a $350,000 home with 20% down
Say you're buying a $350,000 home with a $70,000 down payment (20%) on a 30-year fixed mortgage at 6.5%. You'd be borrowing $280,000, which comes out to a principal-and-interest payment of about $1,770 a month. Add typical annual costs of $4,200 in property tax and $1,500 in home insurance — split monthly, that's another $475 — and your total monthly payment lands around $2,245. Over the full 30 years you'd pay roughly $357,000 in interest alone, more than the original loan amount. Switch to a 15-year term at the same rate and the monthly principal-and-interest payment rises to about $2,440, but total interest drops to around $159,000 — nearly $198,000 less over the life of the loan.
How PMI affects your payment
If your down payment is below 20% of the home price, most lenders require private mortgage insurance (PMI), which protects the lender — not you — in case you default. PMI typically costs between 0.5% and 1.5% of the loan amount per year, added to your monthly payment on top of principal, interest, tax, and insurance. On a $280,000 loan, that's roughly $115 to $350 extra per month. The good news is PMI isn't permanent: lenders are required to cancel it automatically once your balance reaches 78% of the home's original value, and you can request removal yourself once you hit 80% equity — so a bigger down payment or extra principal payments both shorten how long you carry it.
Choosing between a 15-year and 30-year term
A 30-year mortgage keeps the monthly payment lower and more manageable against a typical household budget, which is why it's the more common choice. A 15-year mortgage costs more per month but builds equity roughly twice as fast and can save well over $100,000 in interest on a typical loan, since less of the balance sits accruing interest over time. If you can comfortably afford the higher payment, the 15-year option is usually the cheaper path overall — use the calculator above to see the exact difference for your numbers.
Frequently asked questions
How do you calculate a monthly mortgage payment?
It's based on the loan amount (price minus down payment), the annual interest rate, and the term in years, split into equal payments that cover interest and principal.
What is included in a mortgage payment besides principal and interest?
Many homeowners also pay property tax and home insurance monthly, sometimes collected in escrow. Loans with a down payment under 20% often add private mortgage insurance (PMI) too.
How does the loan term affect my payment?
A longer term (30 years) lowers the monthly payment but increases total interest. A shorter term (15 years) raises the payment but costs less overall.
How do I get rid of PMI on my mortgage?
PMI is removed automatically once your balance reaches 78% of the home's original value, or you can request removal at 80%. Extra principal payments or a larger down payment both get you there sooner.