What your mortgage payment leaves out
The monthly payment on a listing is principal and interest. The amount that actually leaves your account is usually a quarter to a third larger, and every part of the difference is predictable in advance.
PITI, and why the acronym matters
Lenders think in terms of PITI: principal, interest, taxes, insurance. Consumer calculators mostly show you the first two. Those two are what the amortisation formula produces, they are the part that is mathematically interesting, and they are the smaller number.
Your real monthly housing cost is:
Principal + Interest + Property tax + Home insurance + PMI + HOA
The last four are collected by the lender into an escrow account alongside the loan payment, and paid out on your behalf when the bills fall due. From your side it is one debit. From the calculator's side, if it only models the loan, three quarters of the additions are invisible.
The four additions
Property tax
Usually the largest of the four, and the most variable. It is levied as a percentage of assessed value and set locally, so it can differ substantially between two towns in the same state, let alone between states. On a $400,000 home a rate of 1.2% is $4,800 a year, or $400 a month, and there are counties well above and well below that. It also rises over time as assessments are revised, which a fixed-rate mortgage does not.
Home insurance
Required by every lender for as long as they have a lien on the property. A few hundred to a few thousand a year depending on the building and, increasingly, on climate exposure. Premiums in wildfire and hurricane-exposed regions have moved sharply in recent years, and this is the line item most likely to surprise you in year three rather than at closing.
PMI, and the rule that ends it
Private mortgage insurance is charged when your down payment is under 20%. It is worth being clear about what it is: insurance that pays the lender if you default. You pay the premium and receive nothing for it. It typically runs a few tenths of a percent of the loan each year.
The part worth knowing is that it does not last forever, and there are two separate thresholds:
- At 80% loan-to-value you may request cancellation. You have to ask. Nobody will remind you.
- At 78% loan-to-value the lender is required to terminate it automatically, based on the original amortisation schedule.
LTV is your remaining balance divided by the home's value, so it falls as you pay down principal and, separately, if the property appreciates. A calculator that charges PMI for the full thirty years is overstating your cost by thousands. One that ignores PMI entirely is understating the early years, which are the years that decide whether you can afford the house. FinCalc models it running and then dropping off at the statutory threshold, which is the only version that matches what your account will actually do.
HOA
Not universal, but where it applies it is significant and it is not escrowed by the lender - you pay it separately, which makes it the easiest of the four to forget when adding up. Condominiums and planned developments can run to several hundred dollars a month, and the fee can be raised by a vote you do not control.
What the gap looks like
Take a $400,000 home with 10% down, so a $360,000 loan at 6.5% over thirty years. Principal and interest is roughly $2,275 a month. Now add property tax at 1.2% ($400), insurance at $1,800 a year ($150), and PMI at 0.5% of the loan ($150).
The real payment is about $2,975. The advertised figure was $2,275. That is 31% more, and roughly $700 a month, which for most households is not a rounding error but the difference between comfortable and stretched. The PMI portion disappears in about ten years as the balance falls past 78% of the original value; the tax and insurance do not, and both tend upward.
The other number the listing does not mention
Closing costs typically run 2% to 5% of the purchase price and are due at completion, on top of the down payment. On the example above that is $8,000 to $20,000 in cash, separate from the $40,000 deposit. Buyers who have carefully saved a down payment and no more are routinely caught by this.
How to use this
The practical version is short. When comparing houses, compare full PITI and not principal and interest, because the tax rate can differ enough between two towns to reverse which house is cheaper. When deciding what you can afford, work backwards from the payment you are willing to make each month rather than forwards from the largest loan you can be approved for - those are very different numbers, and only one of them is about your life. And if you are near 20% down, run it both ways: the deposit that avoids PMI often pays for itself faster than the extra savings would earn elsewhere.
FinCalc models the complete payment including taxes, insurance, PMI with the automatic drop-off, and HOA, alongside ten other calculators for loans, debt payoff, savings and retirement. It asks for no email address and stores nothing you type.
None of this is financial advice, and I am not a licensed adviser - see the disclaimer. It is arithmetic that is usually left out, put back in.