Understanding Your Mortgage Payment Breakdown
February 28, 2026 · EPM Labs
You got pre-approved for a mortgage. The lender says you can afford $1,800 a month. But what does that number actually include — and what’s hiding outside of it?
Understanding your mortgage payment breakdown isn’t just helpful trivia. It’s the difference between comfortable homeownership and quietly drowning in costs you didn’t plan for.
The Four Parts of Every Mortgage Payment (PITI)
Your monthly mortgage payment is built from four components, commonly called PITI:
1. Principal
This is the portion that actually pays down your loan balance. In the early years of a 30-year mortgage, this is surprisingly small. On a $300,000 loan at 6.5%, your first monthly payment puts only about $375 toward principal. The rest goes to interest.
That ratio flips over time — a process called amortization — but it means you’re building equity slowly at first.
2. Interest
Interest is the cost of borrowing money. It’s calculated on your remaining balance, which is why early payments are interest-heavy. Even a small rate difference matters enormously over 30 years.
On that same $300,000 loan:
- 6.0% → $1,799/month (total paid: $647,515)
- 6.5% → $1,896/month (total paid: $682,633)
- 7.0% → $1,996/month (total paid: $718,527)
A single percentage point costs you over $70,000 across the life of the loan.
3. Property Taxes
Your lender typically collects property taxes monthly and holds them in an escrow account, paying the county on your behalf. Tax rates vary wildly by location — from under 0.5% in Hawaii to over 2% in New Jersey and Illinois.
On a $350,000 home with a 1.2% tax rate, that’s $4,200 per year or $350 per month added to your payment.
Pro tip: Look up the actual tax bill for any home you’re considering. Online listings sometimes show outdated or estimated amounts. Your county assessor’s website has the real numbers.
4. Homeowners Insurance
Lenders require you to insure the property. Annual premiums typically run $1,200 to $3,000+ depending on location, coverage, and the home’s age and condition.
This is also usually escrowed, adding $100–$250 to your monthly payment.
What PITI Doesn’t Include
Here’s where first-time buyers get caught off guard. Your mortgage payment covers PITI, but homeownership costs more than that.
PMI (Private Mortgage Insurance): If your down payment is less than 20%, expect to add $80–$200+ per month for PMI. This protects the lender, not you, and it drops off once you reach 20% equity.
HOA Fees: If your home is in a homeowners association, dues can range from $50 to $500+ per month. These are separate from your mortgage.
Maintenance and Repairs: The general rule is to budget 1–2% of your home’s value per year for upkeep. On a $350,000 home, that’s $3,500–$7,000 annually. HVAC systems fail, roofs leak, and water heaters don’t last forever.
Utilities: Moving from an apartment to a house often means higher utility bills. More square footage, a yard to water, and systems you now maintain yourself.
How to Calculate Your True Monthly Housing Cost
Here’s a realistic example for a $350,000 home with 10% down ($35,000):
| Item | Monthly Cost |
|---|---|
| Principal & Interest (6.5%, 30yr) | $1,991 |
| Property Taxes (1.2%) | $350 |
| Homeowners Insurance | $175 |
| PMI | $140 |
| HOA (if applicable) | $100 |
| Maintenance reserve | $400 |
| Total | $3,156 |
That’s a significant jump from the $1,991 principal-and-interest figure a lender might quote you. The “hidden” costs add nearly $1,200 per month.
The 28/36 Rule — Does It Still Work?
The traditional guideline says:
- Spend no more than 28% of gross income on housing (PITI)
- Keep total debt payments under 36% of gross income
For our $3,156 example (using the PITI portion of $2,656), you’d need a gross household income of about $114,000 per year to stay within the 28% guideline.
This rule is a starting point, not gospel. Your comfort level depends on other factors: student loans, car payments, childcare costs, and how aggressively you want to save.
Want to see exactly what you can afford based on your actual income and debts? Try our Mortgage Affordability Calculator — it factors in all of these costs so you get a realistic picture, not just a lender’s optimistic number.
Three Moves That Save You Thousands
1. Make one extra payment per year. Paying a 13th monthly payment each year (or adding 1/12th extra to each payment) can shave 4–5 years off a 30-year mortgage and save tens of thousands in interest.
2. Skip the max approval amount. Just because a lender approves you for $400,000 doesn’t mean you should spend $400,000. Buy below your max and you’ll have breathing room for everything else life throws at you.
3. Shop your insurance annually. Homeowners insurance rates vary significantly between providers. Bundling with auto insurance, raising your deductible, and shopping around every year can save $300–$800 annually.
Getting Started the Right Way
If you’re approaching your first home purchase, the financial piece is just one part of the puzzle. There’s also inspections, closing costs, moving logistics, and the first 30 days of settling in.
Our New Homeowner Kit walks you through the entire process — from pre-approval through your first month in the house — so nothing falls through the cracks.
You might also find these posts helpful as you plan:
- How Much House Can You Really Afford?
- First-Time Homebuyer Mistakes to Avoid
- How to Build an Emergency Fund from Zero
Homeownership is one of the biggest financial commitments you’ll make. Understanding exactly where every dollar of your payment goes puts you in control — and that’s always a better place to start than guessing.
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