Where Each Payment Goes (Year 1 vs Final Year)
Amortization Schedule (Yearly Summary)
| Year | Principal Paid | Interest Paid | Balance |
|---|
Understanding PITI
Your monthly mortgage payment is usually called PITI: Principal, Interest, Taxes, Insurance. Many buyers only calculate principal and interest, then get surprised when the real payment is 20-30% higher.
PMI — Private Mortgage Insurance
If your down payment is less than 20%, lenders typically require PMI: 0.5-1% of the loan amount per year. PMI protects the lender, not you, and you pay for it until you have 20% equity. On a $450k home with 10% down, that's ~$250-400/month extra for roughly 10 years.
The Real Cost of a Mortgage
On a 30-year mortgage at 6.5%, you pay almost as much in interest as the home costs. A $360,000 loan at 6.5% costs $458,000 in interest over 30 years — the total is $818,000 to own a $450,000 house. This is why making a small extra principal payment each month is so powerful — you cut years off and save tens of thousands.
How Much House Can You Afford?
Conservative guidelines:
- Debt-to-income ratio (DTI): total debt payments ≤ 36% of gross income
- Housing ratio: total housing costs ≤ 28% of gross income
- Emergency rule: home price ≤ 3× gross annual income
- 3-6 month emergency fund remaining after closing