When a lender says your monthly payment is $2,400, they mean your PITI payment — not just the loan repayment. New buyers routinely underestimate this number because standard mortgage calculators only show principal and interest.
Here is what is actually in that number.
P — Principal
Principal is the slice of your payment that reduces your loan balance. In the early years of a 30-year mortgage, this is a small piece — most of your payment goes to interest.
A $400,000 loan at 7% has a monthly payment of roughly $2,661. In month one, only $328 of that goes toward principal. By month 200, the split has flipped: about $1,491 goes to principal and $1,170 to interest.
This is why extra principal payments early in a loan have an outsized impact on payoff time.
I — Interest
Interest is the cost of borrowing — how the lender gets paid. Your rate is expressed annually but charged monthly: a 7% rate means you pay roughly 0.583% of your remaining balance each month.
Because your balance drops slightly each month, so does your interest charge. This is the mechanics of amortization — a fixed payment where the interest portion shrinks and the principal portion grows over time.
T — Taxes
Property taxes are collected by your county, typically in two lump-sum installments per year. Lenders collect 1/12 of the annual bill in every payment and hold it in an escrow account, then pay the county when the bill comes due.
Tax rates vary widely by location — from under 0.3% of home value in parts of Hawaii to over 2% in New Jersey and Illinois. On a $400,000 home in a 1.2% tax area, that adds $400/month to your payment.
If your actual tax bill turns out higher than initially estimated, your lender will adjust your escrow collection — which means your payment increases even if your interest rate does not change.
I — Insurance
Your lender requires homeowners insurance as a loan condition. Like taxes, premiums are usually escrowed: collected monthly, paid in full when the renewal comes due.
Average homeowners insurance runs $1,400–$2,000 per year nationally, but location, home size, and rebuild cost push it significantly higher. In coastal or wildfire-prone areas, $4,000–$8,000 per year is common.
Two Add-Ons You Should Know About
PMI (Private Mortgage Insurance) — Required on conventional loans when your down payment is less than 20%. It protects the lender if you default. PMI cancels automatically when your loan balance reaches 80% of the original purchase price — you can also request cancellation when you reach 20% equity through appreciation or extra payments. PMI typically runs 0.2%–1.5% of the loan amount annually, depending on your down payment and credit score.
HOA dues — If the home is in a homeowners association, dues are not typically escrowed but are still a fixed monthly obligation that lenders count in your DTI. Budget for these separately.
A Real-World Example
A $400,000 home at 7%, 10% down, 1.2% property taxes, $150/month insurance, and 0.8% PMI:
| Component | Monthly |
|---|---|
| Principal & Interest | $2,395 |
| Property Tax (est.) | $400 |
| Homeowners Insurance | $150 |
| PMI | $240 |
| Total PITI + PMI | $3,185 |
The rate-only payment is $2,395. The real payment is $3,185 — a 33% difference that a simple rate calculator would miss entirely.
Run Your Real Number
Use the Mortgage Calculator to enter your price, rate, taxes, and insurance for the full PITI. Or use the Home Affordability Calculator to work backward from a monthly payment you’re comfortable with.