The pieces of the payment
Think of the payment as two piles. One pile pays the loan: principal, which actually reduces what you owe, and interest, which is the cost of still owing it. The other pile is bills that would exist even if you had paid cash: property tax, homeowners insurance, and sometimes an HOA fee. A servicer often collects that second pile and pays the bills later. That does not make them part of the debt.
Mortgage insurance is a third thing, and the name changes with the loan. Conventional loans often call it PMI when you start with less than 20% equity. FHA, VA, and USDA charge their own fees. If a page on this site says PMI, it means the conventional estimate, not every program.
Why the balance falls slowly at first
On a fixed-rate loan the principal-and-interest payment stays the same month after month. Interest is calculated on whatever you still owe. A new loan has a big balance, so interest takes a big bite and principal gets what is left.
A year or two in, that feels discouraging. It is also the schedule working as designed. Later, the same payment puts more toward principal because the balance is smaller. The amortization table is just that story written out month by month. Extra principal shortens it. The 6.75% you see in our calculators is a starting example until you type the rate from a loan estimate.
| Line | What it does |
|---|---|
| Principal | Reduces the balance |
| Interest | Cost of borrowing that month |
| Tax and insurance | Bills held for later, if escrowed |
| PMI or MIP | Insurance on a low-down-payment loan |
Calculators
Related guides
Sources
Common questions
Is the interest rate the same as APR?
No. The note rate is used to calculate principal and interest. APR includes certain finance charges so loans can be compared. See the APR guide.
Does a calculator know my taxes?
No. Enter the tax bill or a local rate. A placeholder is not a quote.