How this is calculated
The loan amount is the purchase price minus your down payment. Principal and interest come from the standard amortisation formula: M = P × r × (1+r)ⁿ / ((1+r)ⁿ − 1), with r the annual rate divided by twelve and n the term in months. Annual property tax and insurance are divided by twelve and added on top to give the all-in figure.
Worked example on a $400,000 home with $80,000 down at 6.5% over 30 years: the loan is $320,000, giving principal and interest of about $2,023 a month. Property tax of $4,800 and insurance of $2,400 add $600. The all-in payment is roughly $2,623 — nearly 30% more than the figure a principal-and-interest calculator would show.
Total interest over the 30 years comes to about $408,000, which is more than the loan itself. That is the defining feature of a long mortgage at a mid single-digit rate, and it is the number most worth looking at before choosing a term.
Why 20% down is the number everyone quotes
In the United States, a down payment below 20% generally triggers private mortgage insurance, which protects the lender rather than you and typically costs between 0.5% and 1% of the loan amount each year. On a $360,000 loan that is $150 to $300 a month for nothing you benefit from directly.
PMI is removable. Once you reach 20% equity — through payments, extra principal, or appreciation — you can request cancellation, and it must be terminated automatically at 22% equity on most conforming loans. Many borrowers pay it for years past the point they could have removed it simply because they never asked.
Outside the US the mechanism differs but the principle is the same: a larger deposit usually unlocks a materially better rate tier, and the jump is often at 10%, 15% or 20%.
The 15-year versus 30-year decision
On the same $320,000 loan, a 15-year term at a comparable rate raises the monthly principal and interest to roughly $2,788 but cuts total interest to around $182,000 — saving well over $200,000 against the 30-year.
The counter-argument is flexibility. A 30-year mortgage with voluntary extra payments gets you most of the interest saving while leaving you the option to fall back to the lower required payment if your income changes. Whether that flexibility is worth the slightly higher rate that usually accompanies longer terms is a judgement about your own income stability, not an arithmetic question.
How to use the mortgage calculator
- Enter the purchase price and your down payment. The loan amount is the difference between them. Closing costs are separate and are not usually financed.
- Add the rate and term. Use a quoted rate if you have one. Try both 15 and 30 years to see the total-interest difference.
- Enter annual property tax and insurance. Property tax is on the listing or available from the county assessor. Insurance and any HOA or service charge go in the second field, as an annual total.
- Read the all-in payment. That is what leaves your account each month. The principal-and-interest row below shows how much of it is actually the loan.