Why the quoted payment is not the payment
Lenders quote principal and interest, because that is the part the loan determines. Everything else is collected alongside it — usually into an escrow account the lender pays your tax and insurance out of.
On the default figures above, principal and interest is about four fifths of the total. On a house with high property tax or an HOA it can be closer to two thirds. Budgeting from the quoted figure is how people end up several hundred a month short.
Mortgage insurance ends
If your deposit is under twenty per cent you will usually pay private mortgage insurance. It is charged while the balance is above eighty per cent of the original value, and it stops — you can request cancellation at eighty per cent, and the lender must cancel automatically at seventy-eight.
This calculator stops charging it at eighty per cent. Tools that charge it for the full term overstate the cost of buying with a small deposit, which is not a harmless error when the number is deciding whether you buy at all.
What an extra payment does
Every extra dollar goes entirely against principal, which removes not just that dollar from the balance but all the future interest it would have generated. That is why the effect is so out of proportion to the amount.
Put a figure in "extra a month" and the panel above shows how much earlier the loan clears and what the interest saving is. Small amounts are worth trying — the compounding works in your favour for once.
Why early payments are almost all interest
Interest is charged on what is outstanding, and at the start that is nearly the whole loan. The payment is fixed, so the split moves gradually: on a thirty-year loan at 6.5%, the first payment is roughly six parts interest to one part principal. It does not reach an even split until around year eighteen.
This is also why selling early is expensive, and why the rent-vs-buy break-even sits where it does.
What this does not include
- Tax deductions on mortgage interest or property tax, which depend on where you live and whether you itemise.
- Rate changes — this assumes a fixed rate for the whole term.
- Points, origination fees and closing costs. Those are one-off costs of getting the loan, not part of the monthly.
An estimate to plan with, not a loan offer.