How amortization works
Amortization spreads one big loan into equal monthly payments that cover both interest and principal. In the early years almost all of each payment is interest — the bank gets paid first. Over time the balance shrinks, so the interest portion of the same fixed payment falls and the principal portion rises. That's why the amortization table above shows tiny principal gains in year 1 and big ones in the final years: you're not paying the house off linearly, you're paying off a debt that itself keeps shrinking.
Why 20% down avoids PMI
PMI — private mortgage insurance — protects the lender, not you. When you put down less than 20%, the lender's risk is higher, so it charges roughly 0.3%–1.5% of the loan per year until your equity reaches that 20% mark. On a $320,000 loan at 0.5%, that's ~$1,600 a year — pure cost on top of your payment. Put down 20% or more and PMI simply never applies. If you do pay PMI, it usually drops off automatically once your loan-to-value ratio hits 80% (or when you refinance).
15-year vs 30-year
A 30-year term gives the smallest payment — more breathing room and cash left over for other goals — but you pay interest for twice as long. A 15-year term typically comes with a lower rate, builds equity roughly twice as fast, and slashes total interest (often cutting the lifetime interest bill by more than half), at the cost of a much larger monthly payment. Run both in the calculator: the gap in total interest is usually the single most striking number on this page. The "right" choice is the one whose payment you can actually sustain — a 15-year loan you default on costs more than a 30-year loan you keep.
Points to remember about escrow
- Escrow bundles — your monthly payment includes 1/12 of annual property tax and home insurance; the lender holds it and pays those bills for you.
- It can change yearly — when tax assessments or insurance premiums rise, the escrow portion of your payment rises with them. Your P&I stays fixed, your total payment doesn't.
- PMI is escrowed too — it's collected monthly and forwarded to the insurer, which is why it shows up as a separate line above.
- Down payment ≠ only upfront cost — budget closing costs (typically 2–5% of the price) on top of the down payment.
This calculator gives estimates with fixed rates. Real mortgages involve fees, rate locks, variable rates and escrow analysis — treat this as planning math, not a loan quote. For related money math see the Compound Interest Calculator and the Debt Payoff Calculator.