How payments work
Your monthly payment is calculated from three things: loan amount, interest rate, and loan term. The math uses a standard amortization formula that spreads your payments so that each one covers that month's interest first, with the rest going toward principal.
Example: A $300,000 loan at 6.5% for 30 years = $1,896/month (principal + interest only). Add property taxes, homeowner's insurance, and PMI if applicable — your actual "PITI" payment will be higher.
Use our mortgage calculator to get your exact number in seconds.
Example: A $300,000 loan at 6.5% for 30 years = $1,896/month (principal + interest only). Add property taxes, homeowner's insurance, and PMI if applicable — your actual "PITI" payment will be higher.
Use our mortgage calculator to get your exact number in seconds.
In the early years, most of your payment goes to interest — not principal. On that same $300,000 loan at 6.5%, your first payment of $1,896 includes about $1,625 in interest and only $271 in principal.
This gradually shifts over time. By year 15, the split is roughly equal. By year 28, most of each payment is principal. This is why refinancing early in a loan term can actually reset your amortization and cost more in total interest — even if the rate is lower.
See a full year-by-year breakdown with our amortization calculator.
This gradually shifts over time. By year 15, the split is roughly equal. By year 28, most of each payment is principal. This is why refinancing early in a loan term can actually reset your amortization and cost more in total interest — even if the rate is lower.
See a full year-by-year breakdown with our amortization calculator.
A lot more than most people expect. On a $300,000 30-year loan:
• At 6%: $1,799/month → $347,514 total interest
• At 7%: $1,996/month → $418,527 total interest
That 1% difference costs you $197/month and $71,000 over the life of the loan. Even a 0.25% difference saves roughly $18,000. This is why shopping multiple lenders matters, and why improving your credit score before applying is worth the effort.
• At 6%: $1,799/month → $347,514 total interest
• At 7%: $1,996/month → $418,527 total interest
That 1% difference costs you $197/month and $71,000 over the life of the loan. Even a 0.25% difference saves roughly $18,000. This is why shopping multiple lenders matters, and why improving your credit score before applying is worth the effort.
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Credit & qualifying
Minimum scores by loan type:
• Conventional loan: 620 minimum (740+ for best rates)
• FHA loan: 580 with 3.5% down, or 500 with 10% down
• VA loan: No official minimum, but lenders typically want 620+
• USDA loan: No official minimum, typically 640+ in practice
Your credit score affects not just whether you qualify, but the rate you get. Moving from a 680 to a 760 score could save you 0.5%–1% in rate — which translates to tens of thousands of dollars over the loan life.
• Conventional loan: 620 minimum (740+ for best rates)
• FHA loan: 580 with 3.5% down, or 500 with 10% down
• VA loan: No official minimum, but lenders typically want 620+
• USDA loan: No official minimum, typically 640+ in practice
Your credit score affects not just whether you qualify, but the rate you get. Moving from a 680 to a 760 score could save you 0.5%–1% in rate — which translates to tens of thousands of dollars over the loan life.
Interest rate = the base cost of borrowing, used to calculate your monthly payment.
APR (Annual Percentage Rate) = the interest rate plus fees (origination, mortgage insurance, broker fees, points), expressed as a yearly rate. APR represents the true annual cost of the loan.
When comparing loan offers, the APR is the better comparison number — a loan with a slightly lower interest rate but high fees can have a higher APR than a loan with a slightly higher rate and no fees. Always compare APRs when shopping lenders.
APR (Annual Percentage Rate) = the interest rate plus fees (origination, mortgage insurance, broker fees, points), expressed as a yearly rate. APR represents the true annual cost of the loan.
When comparing loan offers, the APR is the better comparison number — a loan with a slightly lower interest rate but high fees can have a higher APR than a loan with a slightly higher rate and no fees. Always compare APRs when shopping lenders.
Down payment & PMI
Minimums by loan type:
• Conventional: 3% (first-time buyers) or 5% (repeat buyers)
• FHA: 3.5% with a 580+ credit score
• VA (veterans/military): 0% — no down payment required
• USDA (rural areas): 0% — no down payment required
Putting down 20% eliminates PMI and reduces your loan balance. On a $400,000 home, 20% down means an $80,000 payment up front but saves you $100–200/month in PMI and reduces total interest significantly.
• Conventional: 3% (first-time buyers) or 5% (repeat buyers)
• FHA: 3.5% with a 580+ credit score
• VA (veterans/military): 0% — no down payment required
• USDA (rural areas): 0% — no down payment required
Putting down 20% eliminates PMI and reduces your loan balance. On a $400,000 home, 20% down means an $80,000 payment up front but saves you $100–200/month in PMI and reduces total interest significantly.
PMI (Private Mortgage Insurance) is required on conventional loans when your down payment is less than 20%. It protects the lender — not you — if you default.
Typical PMI cost: 0.5%–1.5% of the loan amount per year, divided into monthly payments. On a $300,000 loan, that's $125–$375/month added to your payment.
How to get rid of PMI:
• Request cancellation when you reach 20% equity (based on original home value)
• Lenders must automatically cancel PMI at 22% equity
• If your home value has increased significantly, a new appraisal can help you reach 20% sooner
FHA loans have their own version called MIP (Mortgage Insurance Premium), which is harder to remove — it often lasts the life of the loan.
Typical PMI cost: 0.5%–1.5% of the loan amount per year, divided into monthly payments. On a $300,000 loan, that's $125–$375/month added to your payment.
How to get rid of PMI:
• Request cancellation when you reach 20% equity (based on original home value)
• Lenders must automatically cancel PMI at 22% equity
• If your home value has increased significantly, a new appraisal can help you reach 20% sooner
FHA loans have their own version called MIP (Mortgage Insurance Premium), which is harder to remove — it often lasts the life of the loan.
15 vs. 30 year — which is right for you?
On a $300,000 loan at 6.5%:
30-year: $1,896/month · $383,000 total interest · paid off 2055
15-year: $2,613/month · $170,000 total interest · paid off 2040
The 30-year costs you $213,000 more in interest — but gives you $717/month more cash flow. The right choice depends on your income stability, other financial goals (investing, paying off higher-rate debt), and how long you plan to stay in the home.
Many financial advisors suggest: if you can comfortably afford the 15-year payment, the interest savings are hard to beat. If the higher payment would strain your budget, the 30-year's flexibility has real value.
30-year: $1,896/month · $383,000 total interest · paid off 2055
15-year: $2,613/month · $170,000 total interest · paid off 2040
The 30-year costs you $213,000 more in interest — but gives you $717/month more cash flow. The right choice depends on your income stability, other financial goals (investing, paying off higher-rate debt), and how long you plan to stay in the home.
Many financial advisors suggest: if you can comfortably afford the 15-year payment, the interest savings are hard to beat. If the higher payment would strain your budget, the 30-year's flexibility has real value.
Mortgage discount points let you pay upfront to reduce your rate. 1 point = 1% of the loan amount and typically reduces the rate by about 0.25%.
On a $300,000 loan, 1 point costs $3,000 and saves about $56/month (at typical rate reductions). Your break-even point = $3,000 ÷ $56 = ~54 months (4.5 years).
Points make sense if:
• You plan to stay in the home past the break-even point
• You have the cash available and don't need it for other purposes
• You're in a high-interest-rate environment where rate reductions save more
Points don't make sense if you might sell or refinance before break-even.
On a $300,000 loan, 1 point costs $3,000 and saves about $56/month (at typical rate reductions). Your break-even point = $3,000 ÷ $56 = ~54 months (4.5 years).
Points make sense if:
• You plan to stay in the home past the break-even point
• You have the cash available and don't need it for other purposes
• You're in a high-interest-rate environment where rate reductions save more
Points don't make sense if you might sell or refinance before break-even.
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